Three Reasons to Buy This Winner From the Mobile Revolution
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s no secret at all that the mobile revolution is here to stay and grow. Smartphones and tablets are exploding on a global scale, and the trend is still in its first stages. Investors looking for alternatives to benefit from mobile should consider the possibility of investing in Qualcomm (NASDAQ: QCOM), a high quality company which is in a privileged position to benefit from the growth of mobile computing.
1. The Right Place at the Right Time
Leadership in the mobile business is a matter of debate. Apple (NASDAQ: AAPL) has been a big innovator in the industry with its tremendously successful iPhone and iPad products, and the company makes big fat profit margins from every sale. In terms of profitability, Apple is the undisputed champion.
Speaking about market share, however, Google's (NASDAQ: GOOG) Android operating system has become the best option for most smartphone manufacturers, including both high-end products from Samsung or low price alternatives from HTC and other manufacturers. As the mobile revolution expands into emerging countries, where pricing is very important and carrier subsidies aren´t such a big help for Apple, Google will probably consolidate its market share leadership in smartphone platforms.
Fortunately for Qualcomm investors, the company sells its chips and technologies to Apple, Samsung and most other relevant players, so the company can continue reaping the benefits from the mobile revolution regardless of the competitive war among different hardware and software providers.
2. Competitive Strength
Success attracts competition, so competitive pressure will be on the rise over the following years. Intel (NASDAQ: INTC) is in almost desperate need of a successful entry into mobile; this is a big competitor with enormous cash flows to invest in R&D and a new management team in place to reinvigorate innovation. Intel is no threat for Qualcomm right now, but could be a potentially serious challenger in the future.
NVIDIA (NASDAQ: NVDA) is another competitor to watch, as the company's Tegra chips are used in non-Apple tablets like Google's Nexus 7, and Microsoft's Surface RT. NVIDIA is still way behind Qualcomm in smartphones, but it will certainly try to close that gap over the following years.
No company is immune from competition, and the tech industry is particularly dynamic, so investors need to monitor the competitive landscape closely in case there are some relevant developments to worry about. As of this time, however, Qualcomm has a rock solid competitive position.
3. Fair Valuation
Keeping in mind that Qualcomm is a very strong company with plenty of growth opportunities; the company is trading at reasonable valuation. Qualcomm carries a P/E ratio around 20, which is below the 5 year average P/E for the company in the area of 24. On a forward basis, the P/E ratio becomes quite attractive: Qualcomm is trading at less than 14 times earnings estimates for the next year.
The dividend yield of 1.6% is not particularly high, but those payments have been growing regularly over the last years. Qualcomm has plenty of room to continue raising dividends in the long term since the business has solid growth prospects and the dividend payout ratio is only 33% of earnings.
The mobile revolution is one of the most promising trends investors can capitalize on over the coming years. Due to its strategic positioning, competitive strengths and fair valuation, Qualcomm is a very solid alternative to benefit from the booming mobile industry.
acardenal owns sghares of Apple and Google. The Motley Fool owns shares of Apple, Google, Intel, and Qualcomm. Motley Fool newsletter services recommend Apple, Google, Intel, and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!