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Qualcomm, Inc. Stock Is More Than Just a Takeover Target

Josh Enomoto

To say that Qualcomm, Inc. (NASDAQ:QCOM) had an eventful 2017 would be a massive understatement. With a headline-stealing legal process against Apple Inc. (NASDAQ:AAPL) and deflecting the ongoing takeover bid of Broadcom Ltd (NASDAQ:AVGO), Qualcomm stock suddenly became a speculator’s dream.

Naturally, investors are still glued to the news about any headway in the buyout drama. The constant back-and-forth represented the primary reason why this year’s CES consumer electronics conference was so critical.

QCOM execs had to show the world that they were more than just a target of an acquisition. Otherwise, the media’s focus would strictly be limited to Broadcom and the “will they or won’t they” raise their offer.

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Qualcomm is, if we’ve forgotten, “the biggest maker of chips that run smartphones,” according to Bloomberg. Didn’t that used to be the reason why investors loved Qualcomm stock?

Not wasting the opportunity, QCOM President Cristiano Amon delivered the message that his tech firm is great again. While acknowledging their dominance in mobile, Amon emphasized that Qualcomm generated $3 billion in sales outside its core business.

In his words, “We’re going to markets that mobile technology is disrupting. The new designs that redefine some of those markets are using Qualcomm.”

It’s not just small talk to gin up excitement for Qualcomm stock. The company is winning big in automotive chips. In addition, it’s producing the processors used in the latest voice-operated speakers, and improving wireless headphone technologies.

In its home court of mobile, QCOM is directly challenging Broadcom in the radio frequency (RF) market. The upcoming 5G network technology requires phones that can connect to multiple frequencies. The current cumbersome solution is for phone manufacturers to incorporate multiple RF chips. QCOM developed one system tunable to multiple frequencies.

Investors Looking at Only One Thing

On the surface, these exciting developments should prove to investors that Qualcomm stock is a “stand-alone” investment. The company doesn’t need Broadcom.

To further cement this resolve, Samsung Electronics Co Ltd (OTCMKTS:SSNLF), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Sony Corp (ADR) (NYSE:SNE) are among interested suitors for the chipmaker’s RF solution.

In addition, QCOM is challenging its aggressor in the home Wi-Fi business. Up until recently, big-name internet service providers integrated cheap semiconductors in their consumer-level modems.

While that decision cut costs, it also opened the door to startup competitors offering superior Wi-Fi services at reasonable prices. As a result, the big boys are upgrading their own offerings and using QCOM chips to boot.

In any other time, the company’s CES presentation would spark Qualcomm stock. Just look at what the famed electronics conference did for Sony shares. Unfortunately, we can’t say the same for QCOM. Despite the plethora of tailwinds, investor sentiment ultimately drives the price. And right now, everybody’s focused on Broadcom’s takeover bid.

I think it’s a real shame obviously because management impressed with its focus and steadfastness. But more critically for would-be buyers of Qualcomm stock, who knows what’s going to happen with the takeover?

Several analysts believe that a deal is a foregone conclusion. As I stated in my last write-up for Qualcomm stock, I don’t share that confidence. Too many variables exist to make me comfortable in leaning one way or another. Our own Vince Martin wrote an exceptionally detailed account of the ongoing drama that I highly recommend you read.

With so many angles to this dynamic story, I can’t say for sure how investors will react in 2018. I try not to play psychologist in the markets, and I certainly don’t want to do it for Qualcomm stock.

Look for a Sensible Alternative to Qualcomm Stock

The only thing I’m sure of is that if you speculated on QCOM back when I suggested it in mid-August of last year, I’d take the profits. Sure, you can hold out for a deal and make even bigger profits, but the opposite is also true.

We should also consult the technical charts. For the last two months, Qualcomm stock hasn’t done much. That tells me that the markets are purely fixated on the hostile takeover. Fundamental drivers aren’t impacting shares the way they should.

Moving forward, I don’t know what to make of the situation. You can speculate on QCOM, but you have to know it’s a gamble. Personally speaking, I believe better, sensible opportunities exist.

As of this writing, Josh Enomoto is long SNE.

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