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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

All signs point to success for Qualcomm investors

Universal Press Syndicate

You may not have heard of Qualcomm (Nasdaq: QCOM), but its technology is probably in that smartphone in your pocket.

Qualcomm is one of the world’s largest chip vendors and is the leading vendor of smartphone-related chips, selling applications processors, modems, connectivity chips and more at a wide range of price points and to a wide range of smartphone vendors. It also owns thousands of patents and collects about 30 percent of its revenue via royalties and licensing fees. Sales of 3G and 4G LTE devices are growing, and Qualcomm is collecting a percentage of their selling prices.

As long as the smartphone boom continues, Qualcomm’s business should benefit – and smartphones are still selling like hotcakes in the U.S. and abroad. (China is one of Qualcomm’s largest markets and accounted for nearly half of all the company’s 2013 revenue.)

The company is more than smartphones, though. It’s looking to sell chips to carmakers, for example, and aims to support connectivity for wearable technology.

Financially sound, Qualcomm has a fortress of a balance sheet, with more than $18 billion in cash and marketable securities on the books. With a price-to-earnings (P/E) ratio in the mid-teens, revenue growing by more than 20 percent annually and a dividend yield near 2.2 percent, Qualcomm is an attractive portfolio candidate.

Ask the Fool

Q: Is a company priced at $50 per share in better shape than a company with a $10 share price? – W.D., Joliet, Illinois

A: Not necessarily. By itself, a company’s share price actually tells you very little, so never examine it in isolation. Lots of other things need to be taken into account, such as how many shares there are (many companies have millions, and others have billions), how much income the company is earning per share, and how the price relates to the company’s earnings, cash flow, growth rates and other measures.

If a company is saddled with a lot of debt and its sales have been shrinking, it’s not the most attractive investment, no matter its price. If an outfit with a $10 or $50 or $100 stock price is growing rapidly, increasing its profit margins and gaining market share in its industry, it’s well worth considering, unless its stock price has zoomed beyond its intrinsic worth.

Remember that a $3 stock can really be worth $1, and a $50 stock might be worth $300. Dig deep to learn more instead of drawing hasty conclusions.

Q: What is arbitrage? – M.E., Mechanicville, New York

A: It’s the practice of profiting from price differences in different markets.

Imagine that stock in Porcine Aviation (ticker: PGFLY) is trading for $25 per share in the United States and $25.10 per share in England. If you simultaneously buy shares in America and sell the same number of shares in England, you’ve earned a profit of 10 cents per share (not counting commission costs).

This may not seem like much, but those who engage in arbitrage are usually large institutional investors with millions to invest in big positions.

My dumbest investment

I bought shares of a groundbreaking genomics company in several installments, until I had accumulated $6,000 worth. That was a large sum for me then – perhaps half of my portfolio. Over about two years, I watched the stock feverishly, got my parents involved, and spent hours a day on what was then perhaps the busiest Motley Fool discussion board. On the best day, my stake skyrocketed 40 percent and put me up to $110,000. As I recall, it never went higher and eventually I sold in despair, netting a 25 percent loss.

I have a standing promise to myself that if I ever have another massive one-day gain on a stock, I’m taking the gain off the table. I’ve done well enough since then to be on track with my retirement goals, but I’ve never had another such gain. – B.C.T., Des Moines, Iowa

The Fool responds: Selling isn’t an all-or-nothing decision. Some investors like to sell a portion of their shares to lock in some gains when they’ve reached certain levels. You might sell all, but you could miss out on further gains.