Are Qualcomm’s Competitive Advantages Too Numerous to Ignore?

0
Are  Qualcomm’s Competitive Advantages Too Numerous to Ignore?

Asphyxiation is a condition in which the body doesn’t receive enough oxygen. A common side effect of asphyxiation is death. Before then, of course, there are hallucinations; we start seeing things that don’t exist. When the market is making new highs, valuations are high, and you get altitude sickness. It is typical to suffer from value asphyxiation: imagining value when it is not there. Mistakes in this environment predominantly come from the commission (not the omission) of buy decisions. That is why, before you commit your capital, you have to double-check your lucidity and think thrice. And that is why, when we stumbled on Qualcomm , we could not believe what we saw.

The San Diego–based chipmaker should double its earnings over the next four years. It has an impenetrable moat, great management, a cash-laden balance sheet, infinite incremental return on capital — and it is cheap, trading at a low-teens multiple. These things are not supposed to happen to a company with a market cap of more than $100 billion that is followed by several dozen analysts — unless the Street is concerned that the company is on its way to becoming obsolete — and especially not while the market is making new highs.

Qualcomm is a value in plain sight because it is misunderstood by investors , and for good reason: Two thirds of its revenue comes from the semiconductor segment. The company designs chips that go into cell phones and tablets. If you read sell-side reports on Qualcomm, most of the ink is spilled about its semiconductor business. This bias makes sense, because Qualcomm is covered mostly by semiconductor analysts, and that is what they know — semiconductors. They have an edge in that arena, and so that is what they write about. They can provide many insights about the intricacies of Qualcomm’s chip-set designs and how its chips are in hundreds of smartphone models, whereas Intel (its largest potential rival) has its chips in less than a handful. They will tell you how Qualcomm combines multiple functions into a single chip, and how that gives the company a competitive advantage. Analysts will generate dozens of pages on the semiconductor segment, which has been growing 20 percent to 30 percent a year.

Avoiding the Losers with XOUT Capital’s David Barse

WinValueWalk's Raul Panganiban David Barse, Founder and CEO of XOUT Capital, and discuss his unique approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with XOUT Capital's David Barse


Continue reading on Institutional Investor…

Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo.  He is the author of The Little Book of Sideways Markets (Wiley, December 2010).  To receive Vitaliy’s future articles by email, click here or read his articles here.

Investment Management Associates Inc. is a value investing firm based in Denver, Colorado.  Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process (see PDF presentation here), as detailed in Vitaliy Katsenelson’s Active Value Investing (Wiley, 2007) book.

Previous article Beware Of 2014 : Here Comes the Dumb Money
Next article Ariel Investments Nov Letter: Thoughts On Energy Stocks
I was born and raised in Murmansk, Russia (the home for Russia’s northern navy fleet, think Tom Clancy’s Red October). I immigrated to the US from Russia in 1991 with all my family – my three brothers, my father, and my stepmother. (Here is a link to a more detailed story of how my family emigrated from Russia.) My professional career is easily described in one sentence: I invest, I educate, I write, and I could not dream of doing anything else. Here is a slightly more detailed curriculum vitae: I am Chief Investment Officer at Investment Management Associates, Inc (IMA), a value investment firm based in Denver, Colorado. After I received my graduate and undergraduate degrees in finance (cum laude, but who cares) from the University of Colorado at Denver, and finished my CFA designation (three years of my life that are a vague recollection at this point), I wanted to keep learning. I figured the best way to learn is to teach. At first I taught an undergraduate class at the University of Colorado at Denver and later a graduate investment class at the same university that I designed based on my day job. Currently I am on sabbatical from teaching for a while. I found that the university classroom was not big enough for me, so I started writing and, let’s be honest, I needed to let my genetically embedded Russian sarcasm out. I’ve written articles for the Financial Times, Barron’s, BusinessWeek, Christian Science Monitor, New York Post, Institutional Investor … and the list goes on. I was profiled in Barron’s, and have been interviewed by Value Investor Insight, [email protected], BusinessWeek, BNN, CNBC, and countless radio shows. Finally, my biggest achievement – well actually second biggest; I count quitting smoking in 1992 as the biggest – I’ve authored the Little Book of Sideways Markets (Wiley, 2010) and Active Value Investing (Wiley, 2007).

No posts to display