Forget Apple and Google, Buy this Fast-Growing Tech Stock

John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

We’ve seen a changing of the guard in technology during recent weeks, as Apple (NASDAQ: AAPL) continues to sustain new lows and Google (NASDAQ: GOOG) is hitting fresh all-time highs.

While Google’s market capitalization is significantly lower than Apple's, institutional investors have been rotating out of the maker of iPads and iPhones and buying shares of Google, which is expanding its horizons beyond Internet search into hardware with Chromebooks and operating systems for Android devices.

While the popular press and financial media continue to dedicate attention to these technology starlets, I’m focused on a less popular tech stock that I believe will make me an equal or greater amount of money.

Qualcomm (NASDAQ: QCOM) is a $117 billion chip manufacturer that I originally wrote about back on Nov. 30. The company develops technology solutions for a Who’s Who list of manufacturers, including both Apple and Google. Samsung’s popular Galaxy SIII, Google’s Motorola Mobility DROID RAZR HD, Nokia’s new Lumia 920, and Dell’s XPS 10 tablet all have Snapdragon processors developed by Qualcomm. The company also manufactures the 4G LTE modem and multi-band/mode RF transceiver in Apple’s iPhone 5.

  Apple
Google
Qualcomm
Market Cap ($) 404.9 billion 276.5 billion 116.8 billion
EPS (TTM) 44.1 32.47 3.33
P/E Ratio 9.53x 25.3x 19.98x
Ann. Dividend / Yield $10.60/2.52% -- $1.40/2.10%
Beta 1.0 1.0 1.0


Although Qualcomm has risen 7% in the last 3 months, here are four reasons why the stock is going much higher to $80 per share:

  • Earnings are expected to grow 11% this year, while sales are forecast to increase approximately 20%. Qualcomm unveiled two new families of Snapdragon processors at the Consumer Electronics Show back in January, and industry analysts unanimously agree that the company’s latest offerings continue to upstage competitors such as Intel.
  • On March 5, Qualcomm announced a massive 40 percent increase in its quarterly dividend for a record $1.40 annual payout. Management also instituted a new $5.0 billion share repurchase program, replacing an existing $4 billion program ($2.5 billion remaining). The announcement comes at a time when Apple management has remained deaf to shareholders.
  • The company has significantly beaten expectations and raised guidance in the last two consecutive quarters. This is reminiscent of Apple in its heyday, when the company would consistently raise the bar.
  • Dan Niles, Senior Portfolio Manager at AlphaOne Capital Partners, recently labeled Qualcomm “the best growth stock in technology” in the same context when he was discussing Apple and Google.

On a qualitative basis, Qualcomm seems to have less overall “noise” than Apple or Google. In particular, the stock is less sensitive to news flow from the popular press, which often has an unwanted impact on more popular tech stocks.

Foolish Bottom Line

For Qualcomm, it doesn’t matter who the winner is in the smartphone battles. All of the major manufacturers utilize the company’s Snapdragon processors in their leading mobile devices. The Consumer Electronics Show in January affirmed Qualcomm as the undisputed leader for the next generation of mobile devices, such as Samsung Galaxy S4 and iPhone 5S.

Qualcomm also commands a net profit margin of 28%, indicating it has strong control over the pricing of its mobile chips. For reference, Apple and Google have net profit margins of 25% and 21.5%, respectively.

The company reports second quarter fiscal 2013 earnings on April 24 after the market close. I recommend that readers accumulate shares of Qualcomm on any market weakness.

Between Apple and Google, I recommend that readers become contrarian investors by selling Google and buying shares of Apple. I believe the valuation disparity between the two has become extreme, with Google trading at 25x earnings and Apple at 10x earnings.

Thanks for reading, and consider subscribing to my posts for more Fool ideas on outperforming the market.


johnmacris has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Qualcomm. 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!

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