QUALCOMM, Inc. (NASDAQ:QCOM) stock is sliding down lately. Should you consider booking some profits in QCOM stock?
Shares of Steven Mollenkopf led telecommunications technology giant QUALCOMM, Inc. (NASDAQ:QCOM) have had a bull run gaining more than 30% in the last one month keeping aside its woes from the earlier part of the year. All thanks to $70 a share takeover bid from Broadcom (NASDAQ:AVGO) which has been rejected by the company board. With the recent run-up in QCOM share price coupled with the latest developments, one can reckon that the situation dynamics around Qualcomm stock have changed considerably now. Qualcomm stock has been plagued by its legal issues and its ongoing standoff with Apple (NASDAQ:AAPL) for the major part of this year. These latest gains and the news which is trickling in now makes one think whether to continue holding your position in QCOM stock or take some profits off the table? Should you consider taking the second option of booking some profits?
The Broadcom bid dynamics have changed.
Qualcomm stock has continued rise steadily even after the initial pop on account of the news of Broadcom's multi-billion dollar acquisition offer. Investors were waiting for further gains from this catalyst as experts and the markets were hoping for the Irvine, California-based semiconductor giant to soon come up with an increased offer with the initial offer being rejected. The new bid was expected to come next week when a proposal to replace the current set of Qualcomm board directors is to be tabled. Now, if one goes by the latest reports, it seems that Broadcom isn't planning to propose a new increased bid until sometime closer to Qualcomm’s board meeting in March. This is a good three months away. Qualcomm's bid to close the NXP Semiconductor (NASDAQ:NXPI) acquisition is also acting as a roadblock for Broadcom to table an increased offer. Reports state that Broadcom could also likely wait till the regulatory bodies give a green signal to the NXP deal which again as per both the companies involved is likely to see a closure only sometime early next year.
The increased bid which has been the driving force behind Qualcomm stock's recent gains is likely to take a back seat now if the above reports turn out to be true. With fresh reports of an escalation of Apple-Qualcomm standoff emerging, as both companies filing latest round of lawsuits against each other for patent infringements. The latest slugfest between Apple and Qualcomm coupled with the Broadcom increased bid developments could have a detrimental impact on investor sentiment. QCOM stock is sliding down lately, declining nearly 4% in the last 5 trading days and all this could add more weight to the downward pressure.
Latest developments do not bode well for Qualcomm's NXP acquisition bid.
The NXP deal has been the fundamental factor behind Qualcomm's future growth story even when the stock was struggling due to its legal issues. Now, the deal is much more important for the Qualcomm board to fend off the takeover bid from Broadcom. If Qualcomm manages to close NXP deal, experts opine that it would be very difficult for Broadcom's proposal to clear regulatory hurdles. The NXP deal closure will also come in hand for the smartphone giant board to convince its shareholders why it was right to go solo rejecting Broadcom's $105 billion offer. The NXP deal is almost closing in for the clearance from the European and Chinese anti-trust agencies but Qualcomm is likely to face stiff opposition from the institutional holders of NXP stock who presently own nearly 20 percent of the company. Fresh reports have emerged that they are still pressing for at least $125 a share. With NXP shares trading above the proposed $110 a share, it is highly unlikely if Qualcomm can close the deal at that price. Qualcomm needs at least 80 percent of the shares to complete the deal and as per the report, at least 15% of the existing shareholders of NXP are also not willing to back the $110 offer. This news amidst the sell-off in chips stocks could likely add to the downward pressure in the immediate near-term.
Time to take some profits off the table?
The recent decline in Qualcomm stock has also come on the back of changing technical setup. Just a day before yesterday, QCOM stock saw a bearish Moving Average Convergence Divergence (MACD) crossover, with the MACD line falling below the signal line, suggesting a loss of momentum. Now, the share price could make a bearish crossover with its 20-day simple moving average (SMA) which is just a few handles away from the last close. With QCOM stock already more than 3% down in the aftermarket hours at the time of writing this article, the bearish crossover could likely happen today. Further, the shorter-term 100-day SMA of QCOM stock is on the verge of going past its long-term 200-day SMA from below, which is generally considered as a bearish signal in technical parlance.
With the changing technical set up and latest developments discussed above, QCOM stock could come under pressure in the immediate near-term. A section of Wall Street is also turning skeptical about the potential upside in QCOM stock from here. Recently, Kevin Cassidy of Stifel Nicolaus downgraded his rating on Qualcomm stock to hold from buy to hold but raised his price target to $75 from $65. He is of the view QCOM stock is likely to struggle with or without the Broadcom deal as even a hostile takeover could have a negative impact on the share price as the deal completion may take at least 12 months. Add the Apple standoff to it, which is likely to weigh heavy on Qualcomm stock. Investors would be better off to take some partial profits off the table now and could look to add more Qualcomm shares in the case of further dip to take advantage of the increased bid from Broadcom in the coming days.
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