I don't like to write about a name twice in a short period of time. Today, I'll make an exception. Little more than two weeks ago I wrote up a piece in response to the announced settlement between Qualcomm (QCOM) and Apple (AAPL) that allowed both firms to avoid a lengthy court fight, and move on to what comes next, namely the roll-out of 5G technology. QCOM popped on the news that Apple would end up settling on a significant payment to Qualcomm in addition to a pledge to resume doing business together. That last bit seemed to chase Intel (INTC) out of a business that they appeared to not really want to be in anyway. By the way, I gave you a couple of ideas for shorting puts that day. I implemented a similar trade after my piece hit publication, and covered that position five days later for 91.8% profit. True story.
Qualcomm went to the tape on Wednesday night with the firm's fiscal second quarter results. QCOM printed adjusted EPS of $0.77 on revenue of $4.9 billion. The revenue print illustrated a year over year decline of 5.8%, but both numbers beat expectations. On the call, Qualcomm made it known that the deal with Apple will contribute a whopping $4.5 billion to $4.7 billion in revenue to the firm's coffers in the third quarter. This is obviously windfall money that has already been reflected to a large degree in the share price. Less those funds, Qualcomm expects adjusted earnings to end up in a range spanning from $0.70 to $0.80.
There is a lot of good and bad that I see in the wake of last night's report and call. The firm gave markets a heads up that they see less demand from China, and the firm is now blaming both those Chinese markets and a lengthening cell phone replacement cycle for a reduction in forward looking shipments.
Since Wednesday (last) evening, I have noticed 11 analysts opine on Qualcomm. Ten of those analysts either reiterated or upgraded to ratings of either "buy" or 'strong buy." Eight of those 10 positive responses came from analysts rated themselves at either four or five stars out of five. The average target price across the entire community is now, according to TipRanks at $92.75. However, just doing my own math among those that have spoken up since last night, the average is more like $99.55.
This is the chart that I threw at you on April 17th. You'll notice that not much has changed. The target price that I gave you at that time was $91. If long I would still take some off there, as that is a 20% move above the left side of the six month purple cup (no handle). The move has now been supported by a golden cross of the 50 day SMA over the 200 day SMA.
However, the daily MACD appears somewhat ready to roll over and Relative Strength remains grotesquely over-bought, and has been since the Apple news broke. A number of professional technical analysts will tell you that gaps always fill. I don't like to use the words "always" or "never", but gaps do often fill. I'll grant them that.
I just can't shake the idea that this name has to wiggle a little. Might take advantage of today's strength, but not without hedging my bet somehow. I would just buy puts, but that's such a waste of money. Here a trade idea, for the bearish, yet risk averse.
- Sell Short 100 shares of QCOM at or close to the last sale of $89.07.
- Purchase one July QCOM $100 call at roughly $1.02.
- Sell one July QCOM $80 put for roughly $1.19.
Notes: The options trades will provide a net credit of $0.17, increasing net basis for the equity short position to $89.24. The purchase of the $100 call limits the traders loss to that point. protection is the only reason for that outlay. Getting short the put limits profit, and is not necessary for the aggressive trader. I placed this part of the trade here as way to illustrate how to get the market itself to pay for one's protection... basically because I'm a cheap old man.