Is Qualcomm a Good Stock to Buy?

There were five finance and insurance companies on our list of the ten most popular stocks among hedge funds for the third quarter of the year. There were the widely followed tech stocks- Apple, Google, and Microsoft- and popular value play GM. The final stock in the rankings, coming in at #10 with 77 hedge funds and other notable investors reporting a position, was $108 billion market cap communication equipment company QUALCOMM, Inc. (NASDAQ:QCOM). See the full list of the most popular stocks.

Qualcomm filed its annual report in November for the fiscal year ending in September 2012. It was an excellent year for the company, with sales up 28% from the previous fiscal year and showing a 14% CAGR over the last four years. Earnings increased 43%; the numbers for the fourth fiscal quarter were lower in both cases, but still about a 20% improvement on the numbers from a year earlier. In addition, QUALCOMM, Inc. boosted its R&D costs for the year by about a third, a growth rate roughly in line with that of revenue.

Qualcomm now trades at 18 times trailing earnings, suggesting that investors expect some continuation of high growth despite the company’s size. Wall Street analysts expect $4.30 per share in earnings for the current fiscal year, which would represent 16% growth rate from the last year and a current-year P/E of 15. The $1.08 in average quarterly EPS is fairly high compared to 73 cents in its most recent quarter, so we’re skeptical that the company can hit its targets. We think that even if earnings come in slightly below expectations, the stock would be about fairly priced. If Qualcomm can continue double-digit growth rates in future years, then it will prove undervalued at current levels.

Billionaire Ken Fisher’s Fisher Asset Management owned 9.2 million shares of QUALCOMM, Inc. at the end of September, about even with what it had owned three months earlier (check out more of Fisher’s stock picks). Another major holder of the stock was Lone Pine Capital, which is managed by billionaire and Tiger Cub Stephen Mandel. The $17 billion hedge fund actually cut its stake during the third quarter but still reported a position of 6.9 million shares (find more of Lone Pine’s favorite stocks).