QUALCOMM, Inc. (NASDAQ:QCOM) fell to $50 mark for the first time in 2017. Is it time to sell QCOM stock? Or, is it a value buy?
San Diego, California based smartphone chip giant Qualcomm Inc (NASDAQ:QCOM) shares took another hit in yesterday's trading session closing nearly 4% down at $50.03. The last close meant the stock saw one of the biggest downward moves in a single day in over last 6 months. This was also the first time the stock closed at the $50 mark in the last 15 months The latest drop piled on more misery on Qualcomm shareholders as the stock is already struggling on account of its legal woes and is down more than 23% in the year-to-date. Now, the downside risk is a big cause of concern for investors. With the QCOM stock price now equal to its lowest close in the last 18 months, what lies ahead for QCOM stock? Is it time to sell the stock? Or, is this a value buy opportunity?
Why QCOM stock plunged yesterday?
A 4% movement, in either direction, in a single session is a major decline by Qualcomm standards. The major cause behind yesterday's drop was the company's announcement stating that Seoul High Court has rejected Qualcomm's request for a stay order on South Korea's antitrust body's recent order. As per the regulator's order, the U.S. firm needs to negotiate patent licensing in good faith with rival chipmakers, and possible revisions with current licensees if requested. The court is yet to give its verdict on the company's another lawsuit calling for the cancellation of the antitrust body's decision. The geopolitical tensions with North Korea and another powerful hurricane which weighed heavy on broader markets also played their part in the stock's decline. It was in overall a weak day for semiconductor industry with the onset of September, the market's traditional worst month.
Recent analyst commentary.
Only one analyst came out in support of Qualcomm after the latest legal setback. J.P. Morgan analyst Rod Hall, a QCOM bull, suggests one should not read much into the Seoul high court ruling as the company is not at risk to lose much globally due to the Korea matter. In a note to his client, Hall writes, "While this is interesting, we do not believe it affects QCOM treatment in other countries. We also point out that the smartphone volumes in Korea are tiny relative to global volume and have little impact on Qualcomm’s licensing revenue stream."
Previously, Stacy Rasgon of Bernstein, who has a Market Perform rating on Qualcomm, was very critical of the way the management has updated investors about the legal battle with Apple (NASDAQ:AAPL). Rasgon suggests that the management did not give the true picture of the actual discourse in the courts to investors. He hints contagion as a real risk for the company going by the management's court room statements and contemplates that another company is withholding royalties to Qualcomm, supposedly Huawei. Bernstein analyst's bottom line from all this is that “we see little likelihood of a settlement with AAPL anytime soon, and these recent legal disclosures do not fill us with additional confidence." The recent analyst commentary doesn't offer any conclusive insights for the investors. It still maintains the uncertainty about the smartphone giant's future prospects. It seems Qualcomm shareholders need to wait much longer in order to have clarity over the company's legal battle's outcome.
Technicals have a lot to say.
The latest drop has sent the Qualcomm stock into oversold territory. The stock is oversold as per both popular momentum indicators Relative Strength Index (RSI) and Bollinger Bands. The present RSI measure of 18.73, is well below the commonly use oversold threshold measure of 30 and the share price has breached the lower Bollinger Band to signal an oversold condition. This offers hope of near-term recovery soon but QCOM stock has also seen a bearish crossover. Qualcomm shares saw a bearish Moving Average Convergence Divergence (MACD) crossover in yesterday's trade. The MACD line fell below the signal line in a bearish move. This suggests a mixed scenario from a technical perspective, QCOM stock could continue to be under pressure. Further, the stock enjoys strong support levels at the $50 level, the stock has bounced back multiple times from this levels in the last 18 months. A breach of this support level could be fatal for the stock and investors needs to brace for more volatility going ahead. The Bollinger band squeeze starting last month does suggest a rise in volatility going ahead.
QCOM stock fell to $50 for the first time in the last 15 months. However, the chances for an immediate turnaround appear bleak, given the unresolved legal troubles and the risk of Qualcomm failing to close the NXP Semiconductor (NASDAQ:NXPI) acquisition in time. Many in the market feel NXP deal closure would be an uphill fight for Qualcomm. For the acquisition to be completed without any hiccups, it probably needs to raise its previous offer of $110 a share, which could put more pressure on the company's balance sheet. Qualcomm stock at $50 level could come across as a value buy opportunity, given the high 4.3% dividend yield and cheap valuation. However, it could be a risky bet and investors making an investment may need to wait for a much longer time before they bear fruits. The legal risks presently over weigh other positives.
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