Bottom dishing can be risky as it is very difficult to catch a falling knife at the correct time. Although risky, the investment opportunity is tempting as the risk/reward ratio is very favorable in many cases. However, it is important for investors to pick the right stocks and not be blinded by the potential reward.
I recommended buying Qualcomm (QCOM, Financial) in January when the stock was trading near multiyear lows. Since then, Qualcomm has shot up almost 20%, and it may be time for investors to book partial profit. Although the prospects of Qualcomm are still bright, it would be wise to take some profits off the table.
Market growth
Despite the fact that Qualcomm is aggressively focusing on the potential loss of modem share at Apple (AAPL, Financial), the market is not considering the overall situation with the company. The company is belligerently moving into Internet of Things, data centers, virtual reality and, most significantly, drones.
According to Qualcomm’s projection, the entire addressable prospect for the QCT segment will surge to more than $100 billion from the $23 billion for the fundamental mobile market in 2015. A major part of the budding opportunities come from the partnership with TDK Corporation (TDK, Financial) to take advantage of the RF front-end prospect and Internet of Things that will account for around $15 billion each by 2020.
Investors who are aggressively focused on the Apple or Intel (INTC, Financial) story are not seeing the company's positive factors. Despite the fact that the company may lose some baseband modem business with Apple, it is likely that Qualcomm will gain business back from Samsung mainly due to its presence in Galaxy S7 and S7 Edge.
A problem for Intel
Recently, ASUSTek (TPE:2357, Financial) decided to shift itself from Intel. It is crystal clear why ASUSTek decided to move away from Intel toward Qualcomm or MediaTek. Intel’s most recent midrange smartphone platform is identified as Moorefield. This platform was initially launched in the second quarter of fiscal year 2014 and observed a few minor speed shunts in the third quarter of fiscal year 2015.
Both Qualcomm and MediaTek have been launching new, extremely integrated parts for the midrange and high end of the mobile market for quite some time. These enhancements add new features and functionality that can advance the capability of things like cameras and lead to superior graphics and CPU performance.
The type of cellular modems used by Qualcomm are relatively efficient. For midrange and high-end solutions considering Intel, a stand-alone modem is the only choice, taking up board space, decreasing efficiency and eventually increasing cost.
Conclusion
While Qualcomm's prospects are still bright, I am a conservative investor, and investors should consider taking some profits off the table. However, given the potential tailwinds, I wouldn't bet against Qualcomm moving higher in the near future.
