The semiconductor sector is booming, as evidenced by the ‘year to date returns’ of some of the larger Semiconductor ETF’s..
If you invested in any of these notable ETF’s in 2022 when the semiconductor industry was out of favor and held your position, then man would you be sitting in the catbird seat today!
VanEck Semiconductor ETF 32.10%
iShares Semiconductor ETF 28.21%
SPDR S&P Semiconductor ETF 15.62%
But really, the semiconductor business should be booming! I mean, nearly everything from cars, to cell phones, to heck even refrigerators, runs on a micro processing chip. The demand is there; it’s the other half of the economic equation where the struggles lie, that being Supply.
Digging deeper into these ETF’s and a few others, it seems like they all have Nvidia as their top holding. And, why shouldn’t they, for goodness sake Nvidia was trading nearly 40% higher this Cinco De Mayo when compared to last year.
Nvidia is the popular ‘best dressed’ girl, with long-flowing blond hair and those Betty Boop eyelashes, who seemingly gets along with everyone. Great ‘Arm Candy’ but hey; she seriously lacks in the dividend department.
Nvidia instead, is purely a growth position, most of all the profit goes back into the company, and very little to its shareholders. The value you get here is one thing and one thing only; the hope of price increase!
So, if it’s dividend income you’re after, and you’re not into real estate investing or options trading, you probably don’t want to put your money into Nvidia. A better direct income opportunity would be with Qualcomm, Taiwan Semiconductor, or Monolithic Power Systems. All of which pay North of a 1.75% dividend.
As a current shareholder of Qualcomm, I’d like to commend my chosen horse and hope you too will recognize its value. Not that I want you to invest in it (because I don’t offer financial advice here) but, I merely want to bring awareness.
That way, if you’re in the market for a severely beaten down semiconductor stock, which pays it’s patient and savvy shareholders 4 times a year, has a squeaky clean balance sheet and a very bright future, you may want to consider Qualcomm.
What’s the Buzz about Qualcomm
For Starters Qualcomm is a leader in 5G technology.
Qualcomm has the corner of the 5G market, their Snapdragon 5G mobile Platform offers lightning fast connectivity, low latency, and the broadest coverage anywhere in the world. Qualcomm is so ahead in the connectivity game, that they are even working on 6G technology.
Qualcomm has a very lucrative Licensing Business Model.
Qualcomm offers licensing of its Patented Technology which are a necessity for many mobile handsets. By doing this, it provides Qualcomm with a steady income stream, which can be used on R&D, to acquire smaller niche companies, or reward its shareholders with an increased dividend payment.
And when it comes to Fiscal Responsibility, Qualcomm is top notch
Qualcomm’s EBITDA is off the charts good!
EBITDA is the acronym for ‘Earning before interest, taxes, depreciation and Amortization’ and a 10% margin is considered to be above average.
According to Finbox, Qualcomm’s EBITDA forecast for the next fiscal year is expected to be 12.247 Billion.
Dividing the 12.247 billion by its trailing twelve month revenue (TTM) gives Qualcomm a 28.50% EBIDTA Margin. Remember 10% is considered above average. So, I have to assume Qualcomm’s forecasted EBITDA would be considered ‘off the charts”!
Compare this to the aforementioned ‘Arm Candy’ Nvidia, whose EBITDA looks to come in at 10.395 Billion, (still not too shabby) next fiscal year, and you’re looking at a 16.36% difference between the two companies.
But yet, Nvidia get’s all the love! Dang those blonds get all the breaks, don’t they!
But is Qualcomm a good buy now?
The shares are trading down 2.39% YTD at the time of this writing. Qualcomm is a cash flow magnet, with an industry low PE (11.74) and a strong 25.70% profit margin.
It’s Return on Income is stout at 41.20% and its Earnings Per Share in the last 5 years is an enviable 47.40%.
But, are past results indicative of future prospects?
It’s hard to tell, but I do know the Semiconductor sector future looks really, really bright- 5G/6G Technology, Contributions to the Energy Grid, Artificial Intelligence, Internet of Things, Wearables, will all continue their ascent to economic supremacy.
Is now a good time to buy Qualcomm?
I can’t tell you what’s good for your situation, but I know I’m adding to my shares, particularly because of Qualcomm’s ability to generate a lot of revenue, and when I say a lot, I mean a lot. Like 41 Billion lot!
They pay their shareholders very well with their 2.90% (at the time of writing) dividend yield, and a very safe and healthy 31.90% payout ratio.
Analysts believe the shares should be trading at $133.81 which would be a 17.53% increase from where it’s currently trading.
It’s PE of 11.74 rivals that of Chevron (8.33) and Verizon (6.82) and it’s Return on Investment for the trailing twelve months is a exceptional 41.20%
Technical Analysis of Qualcomm
Qualcomm’s RSI is currently in a sweet spot. Typically an RSI under 30 illustrates an oversold situation, and Qualcomm’s current share price represents an RSI of 44. This seems to indicate it’s primed for a trend reversal to the upside.
Qualcomm’s is trading at the lower end of the Bollinger Band.
As you can see Qualcomm’s trading price is on the lower end of the Bollinger Band and 20.14% below its 20 day moving average. These are typically signs of an oversold asset. When you couple the RSI and the Bollinger Bands being in the ‘oversold range’, it presents a significant opportunity for a trend reversal.
So, I will continue to buy shares of Qualcomm by Dollar Cost Averaging, especially now when it appears the shares are trading in an ‘Oversold Pattern’. Anyone else a buyer of Qualcomm at these prices?