Up to last week, shares of chipmaker Qualcomm Inc (NASDAQ: QCOM) had been trading largely sideways since this time last year, with several recent attempts from the bears to send them down to fresh lows. They've been fighting the current for some time, and with their shares having sank 50% from last year's all-time high, investors were always going to want at least some consolidation.
To be fair, you could argue that they've gotten it this year. While the stock has undeniably been in a downtrend for the past eighteen months, it hasn't hit a new low since November of last year. In fact, it's starting to look like the momentum is swinging towards the upside once more in the technology sector, and with the S&P 500 after logging its longest win streak in over two years, there's definitely a risk-on sentiment starting to appear.
With Qualcomm shares having jumped as much as 15% in the past week, let's jump into three of the top reasons they might be this month's easiest buy.
A large part of the recent bounce has been driven by the company's Q4 earnings released last week. Wall Street's initial focus is always on the headline numbers of a report, that is, a company's top line revenue and their bottom line earnings. In particular, investors want to know whether a stock has topped analyst expectations.
Qualcomm did just that and came in above the consensus for both their revenue for the quarter and their EPS. When a stock has been beaten down as much as Qualcomm, very often, the worst case scenario is already priced in. This means that investors have assumed that growth will continue to slow and results will continue to disappoint.
So when a company can deliver a resounding beat on the headline numbers, it often results in the immediate need to revalue a stock, as the worst-case scenario has not come to pass. In fact, Qualcomm's leadership issued forward guidance for Q1's earnings and revenue, both of which were also higher than what analysts were expecting.
This has reinforced the sense that the company's shares are trading well below market value. We can see how potent this is in the way that Qualcomm stock traded in the immediate aftermath of the release, with shares gapping up on the next open and trading higher every day since then.
Off the back of last week's report, there were a ton of bullish calls from analysts that all screamed buy. Bernstein's Stacy Rasgon reiterated his Outperform rating on Qualcomm stock and increased his price target to $145. Even with shares having continued to rally in the days since that move, it's still implying a potential upside of at least 20%.
Were Qualcomm shares to hit this in the coming weeks, they'd have conclusively broken out of their range for the past year.
Rasgon figures that shares have bottomed, and having given investors five very painful quarters, what we're now seeing is the turning point. The team over at JP Morgan took a similar view and also increased their price target on the basis that the impressive forward guidance signals an "end to the downward spiral the smartphone market has been in over the last year."
These kinds of comments add further weight to the opportunity opening up in Qualcomm shares, and the sense of a bottom is reinforced by the stock's technical setup. Having tried to take shares below the $100 mark three times in the past eighteen months and as recently as last month, the bears are going to be under serious pressure now that momentum is swinging upwards.
For those of us thinking about getting involved, an entry around here means there's a super clear line to work emergency stop orders around in case things turn south. But to the upside, it gets pretty exciting pretty quickly.
If shares can keep moving towards $130 and beyond in the coming sessions, they'll have broken the downtrend that's plagued the stock since the start of last year. This would force any short sellers to buy shares to exit their positions, which would only add to the upside momentum.