With the semiconductors space heating up going into 2017, should you pick shares of QUALCOMM, Inc. (NASDAQ:QCOM) over Intel Corporation (NASDAQ:INTC)’s?
– Intel dominates the PC and server markets while Qualcomm leads the mobile market.
– While the PC market is shrinking, the mobile market is still growing, albeit at a slower rate.
– While both stocks look attractive, QCOM is a better choice. Here’s why.
Semiconductor companies have done very well in the last year. In fact, in the last 52 weeks, the average price change for the sixteen semiconductor stocks which are included in the S&P 500 index was 35.62%. In this period the price change of the S&P 500 was 11.94%, and of the Nasdaq Composite Index was 8.99%. Moreover, only two S&P 500 semiconductor companies Skyworks Solutions Inc (NASDAQ:SWKS) and First Solar Inc (NASDAQ:FSLR) have seen their stock prices decline in the last 52 weeks.
As such, investors who are considering an entry into stocks from this trending industry could end up weighing the alternatives. Should you buy shares of one of the largest semi semiconductor companies by market cap, Intel Corporation (NASDAQ:INTC)? Or should you buy into QUALCOMM, Inc. (NASDAQ:QCOM) instead? In this article, I will try to explain which of the two stocks is more attractive right now.
Follow Qualcomm Inc (NASDAQ:QCOM)
Follow Qualcomm Inc (NASDAQ:QCOM)
Intel dominates the PC and server markets while Qualcomm reigns supreme in the mobile market. While the PC market is shrinking, the mobile market is still growing, albeit at a slower rate. According to technology research company IDC, Global PC shipments decreased 3.9% in the third quarter of 2016 compared to the same quarter a year ago, to 68 million units. However, the decline was much lower than the previously projected 7.1%. Loren Loverde, vice president, Worldwide PC Trackers & Forecasting, commented:
“We are very pleased to see some improvement in the market. Industry efforts to update products to leverage new processors and operating systems, to deliver a better computing experience encompassing more mobile, secure, and faster systems, and to accelerate PC replacements have been critical. These improvements are accumulating, and set the stage for a stronger market going forward.”
Also Read: This Could Be The Biggest Reason To Buy Qualcomm (QCOM) Stock
In contrast, the smartphone market is still growing. According to IDC, the global smartphone market increased by 0.7% in the second quarter of the 2016 year over year, with shipments of about 345 million units. Weaker demand in developed markets such as the United States, Western Europe, Japan, and Canada was the reason for the weak growth.
Qualcomm vs Intel – A Look At The Financials
The table below compares the annual average growth in revenue, earnings per share and dividend over the last five years for the two companies. It also includes the average annual estimated EPS growth for the next five years.
The table clearly shows that Qualcomm’s growth rates are higher in all the categories. The only metric where the difference is not as significant is the projected EPS growth over the coming 5 years, with projections at 10.50% for Qualcomm versus 10% for Intel.
Valuation Comparison
The table below compares major valuation multiples for the two companies.
As the table indicates, there is no significant difference in the valuation metrics between the two companies, and both companies have attractive valuations. However, Qualcomm’s current annual dividend yield is a bit higher at 3.17% compared to Intel’s current annual dividend yield of 2.79%. Qualcomm’s payout ratio is 52.5% while Intel’s is 58.4%.
Follow Intel Corp (NASDAQ:INTC)
Follow Intel Corp (NASDAQ:INTC)
Stock Performance Comparison
Both stocks have underperformed the market in the last few years. However, both companies have good growth prospects, and as I see it, they are well positioned to outperform the broader markets in the next few quarters.
Also Read: Can Qualcomm become the Next Intel?
Since the beginning of the year, QCOM’s stock is already up 33.8%, while the S&P 500 Index has increased 11.1%, and the Nasdaq Composite Index has gained 9.5%. However, since the beginning of 2012, QCOM’s stock has gained only 22.3%. During this period, the S&P 500 Index has jumped by 80.6%, and the Nasdaq Composite Index has risen 110.5%. According to TipRanks, the average target price of the top analysts for Qualcomm is at $73.50, representing an upside of 9.8% from its December 20 close price of $66.91. However, in my opinion, shares could go even higher.
Since the beginning of the year, INTC’s stock is up 8.0%, and since the beginning of 2012, the stock has gained only 53.4%. According to TipRanks, the average target price of the top analysts for Intel is at $40.47, representing an upside of 8.8% from its December 20 close price of $37.21, which appears reasonable, in my opinion.
What To Expect From Next Quarter Earnings Reports
Qualcomm is scheduled to report its first quarter fiscal 2017 financial results on Wednesday, February 1, after market close. According to 19 analysts’ average estimate, Qualcomm is expected to post a profit of $1.17 a share, a 20.6% increase from the year-ago quarter. The highest estimate is for a profit of $1.22 a share while the lowest is for a profit of $1.06 a share. Revenue for the first quarter is expected to grow 5.9% year over year to $6.11 billion, according to 19 analysts’ average estimate. There was one downward earnings per share revision during the last thirty days.
Intel is scheduled to report its fourth quarter 2016 financial results on Tuesday, January 17, after market close. According to 30 analysts’ average estimate, Intel is expected to post a profit of $0.75 a share, a 1.4% increase from the year-ago quarter. The highest estimate is for a profit of $0.79 a share while the lowest is for a profit of $0.71 a share, not a big difference. Revenue for the fourth quarter is expected to grow 5.5% year over year to $15.73 billion, according to 32 analysts’ average estimate. There were two upward earnings per share revisions during the last seven days.
Conclusion
While both stocks look attractive in my opinion, The QCOM stock has the advantage of the growing mobile market compared to the shrinking PC market. What’s more, as I wrote in my previous article about Qualcomm (1), it has developed new products and applications that could increase its revenue and profits and drive higher its stock over the coming quarters. Taking everything into consideration, I think Qualcomm is a better bet than Intel right now. Looking for great tech stocks? Check out Amigobulls’ top stock picks, which have beaten the NASDAQ by over 110%.
The article Is Qualcomm Inc (QCOM) Stock A Better Bet Than Intel Corporation (INTC) Stock? originally appeared on amigobulls.com. Watch our analysis video on QCOM.
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