David Rolfe (Trades, Portfolio) is the CIO of Wedgewood Parnters, a St. Louis based mutual fund management firm founded in 1988. The great thing about Rolfe is that he limits the holdings to about 20 investments, which is abnormal for a mutual fund. And, given that his fund has outpaced the S&P over the last 3, 5, 10, 15, and 20 year periods, this approach has withstood the test of time. Too bad more mutual funds don’t follow this approach.
You can learn more about David in this Barron’s article.
http://www.riverparkfunds.com/downloads/News/High-Conviction-Barrons-talks-with-RiverParkWedgewood-Fund-Portfolio-Manager-David-Rolfe.pdf
That said, in the latest quarterly filing, Rolfe added more Qualcomm Inc. (QCOM, Financial) stock than any other, bringing his position in the company to 9,521,542 shares at a reported price of $69.34. Right now, the stock sits under $65 a share.
Other notable stocks in the portfolio include Berkshire Hathaway B Shares, Apple, Coach, National Oilwell Varco, Verisk, and Visa. Yet QCOM is his largest holding comprising close to 9% of the $7.45 billion portfolio - around $670 million.
QCOM was founded in July 1985 and over that time has created a very durable competitive advantage considering that regardless of whether a consumer buys an iOS or Android smartphone device, QCOM technology is integral within each.
The smartphone market is still booming as more and more people switch to the latest and greatest. Apple just reported it sold over 135 million phones in the first two quarters of 2015, 80% of the entire amount it sold in 2014. More importantly, 5G is coming and from the looks of it, Qualcomm is looking to be on the cutting edge of this new technology that will be 100% necessary for the IoT future.
Download the company’s 5G presentation:
https://www.qualcomm.com/invention/technologies/5g
This will mean further growth to the already stellar financial position the company commands.
Current Financials
- $15.5 Billion in Cash
- $1.10 Billion in Debt
- 3.10% Dividend Yield
- $7.16 Billion in Earnings
- $27.5 Billion in Revenue
Last 5 Years
- 141% growth in sales
- 145% growth in income
- 79% growth in book value
Last 10 Years
- 367% growth in sales
- 271% growth in income
- 242% growth in book value
Risks To Growth
- QCOM gets a portion of the sales price of nearly every 3G and 4G device that uses its intellectual property. Over time, the price point for existing smartphone devices will gravitate lower.
- Intel is looking to dive into this market as well, which will put pressure on QCOM to continue spending on R&D, potentially reducing gross margins.
- The Chinese government, fresh off its $975 million settlement with QCOM, has made a concerted effort to develop its own semiconductor industry, which could mean less penetration within the largest market for smartphones on earth.
Stock Valuation
There are always numerous ways to evaluate a company both fundamentally and technically. In the end, most of it’s just guessing games, which is why vital importance must be paid to the price you pay and the term you hold it.
If the current growth path continues, the EPS will rise to above $9 a share by 2020. Given its current multiple, that would kick the stock above $130. Buying a stock at 50% discount fits perfectly within the idea of doubling your money every 3 to 5 years. In terms of QCOM, based on the stock’s intrinsic value, the company is a screaming buy under $65.
Should you follow Rolfe and Wedgewood and buy QCOM?
Yes! Better yet, the stock sits near a year low with all the bad news baked in and an incredible future ahead of it.
