We recently compiled a list of the 10 Best Undervalued Stocks To Buy Now. In this article, we are going to take a look at where QUALCOMM Incorporated (NASDAQ:QCOM) stands against the other undervalued stocks.
Demographic Shifts and AI Innovation: A Bullish Case For the US Market
In the prior couple of years, experts and analysts were worried about a recession in the US and their best-case scenario was a soft landing. Experts are still predicting the latter. However, 2024 has proven to be quite a healthy year for the US stock market as it recently hit new highs on the back of technology stocks. Moreover, we also saw notable market broadening in the latest earnings season. However, Co-Founder and Head of Research at Fundstrat Global Advisors, Tom Lee is not just bullish on the current year but also sees the US stock market almost tripling by the end of the decade.
On June 26, Lee told CNBC that he believes the S&P 500 could reach 15,000, driven by a combination of demographic trends and technological advancements. He compared today’s market to past periods of rapid growth, such as the 1920s and the 1950s-1960s. He credits the potential surge to an increase in the population of prime-age adults (30 to 50 years old), which is now led by Millennials and Gen Z. As these generations enter their peak earning years, their borrowing and spending are set to increase, and they are going to take major life decisions which are expected to drive economic growth.
In addition to these demographic factors, Lee highlights the transformative impact of artificial intelligence (AI) on the economy. He believes that AI presents a significant opportunity for US technology companies, especially as it addresses a global labor shortage by converting labor costs into technological solutions, which would probably boost the US tech sector revenues. Furthermore, the US, with its leading technology sector, is well-positioned to attract substantial global investment, especially as we see that other regions like China and Germany face demographic and economic challenges.
Despite Tom Lee’s optimism, he acknowledged several risks to his bullish outlook. He said that a global recession could undermine growth, and the development of AI could also backfire or cause geopolitical instability. Additionally, there is the potential for the stock market to peak prematurely, forming a bubble.
Despite the risks, Tom Lee predicts an optimistic outlook for the US market in the current decade. Based on his insights, this could be an ideal time to invest in the market for the longer term. Keeping in mind that Lee predicts good things for the future of AI, you can take a look at the 10 Best Artificial Intelligence Stocks to Buy Under $10.
Our Methodology
For this article, we identified over 40 stocks that were considered undervalued by other financial media websites. From that list, we narrowed our choices to 10 stocks whose forward PE ratio was either equal to or below 15 or was below their industry average, as of June 24. We listed the stocks according to their hedge fund sentiment, which was taken from our database of 920 elite hedge funds as of Q1 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician testing the latest 5G device, demonstrating the company’s commitment to innovation.
QUALCOMM Incorporated (NASDAQ:QCOM)
Forward PE as of June 24: 20
Number of Hedge Fund Holders: 78
QUALCOMM Incorporated (NASDAQ:QCOM) is an American telecom equipment and semiconductor company headquartered in California. The company operates in a variety of high-growth markets including smartphones and autonomous vehicles and makes chips for companies like Samsung, Huawei, BMW, and Toyota. In the first quarter, 78 hedge funds held positions in the company and their stakes amounted to $4.6 billion. As of March 31, Matrix Capital Management is the most significant shareholder in the company and has a position worth $1.17 billion.
QUALCOMM Incorporated’s (NASDAQ:QCOM) handset business is thriving, especially with the strong performance of the company’s third-generation Snapdragon platforms built for high-end smartphones. Revenues from Chinese OEMs grew by over 40% in the first half of fiscal 2024, showing a strong demand beyond its major customers like Samsung and Huawei.
QUALCOMM Incorporated’s (NASDAQ:QCOM) diversification strategy is bearing fruit, particularly in the automotive and IoT segments. The company’s automotive business has experienced a significant 35% year-over-year revenue increase, which is mainly credited to its Snapdragon Digital Chassis, its suite of technologies that supports advanced driver-assistance systems, autonomous driving, and enhanced in-car experience. The company’s design-win pipeline in the automotive sector has expanded significantly and is now valued at approximately $45 billion which shows strong market confidence and a steady flow of future business. The company is also expanding its presence in the IoT market and is introducing innovative products tailored for applications in robots, drones, and industrial handheld devices.
QCOM is trading at 20 times its 2024 earnings estimate, which is a 14% discount to its sector median. On June 21, Tigress Financial’s analyst, Ivan Feinseth raised his price target on the company stock to $270 from $238 and kept a Buy rating. Feinseth expects the company to benefit from increased AI capabilities and processing power in handheld devices. Overall, analysts hold a consensus Buy opinion on QUALCOMM Incorporated.
ClearBridge Investments stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its first quarter 2024 investor letter:
“Another theme of that era was mobile telephony. QUALCOMM Incorporated (NASDAQ:QCOM) soared over 2,600% in 1999 on a very similar premise as Nvidia is seeing now — it was the brains behind the secular trend, so whoever won, Qualcomm would participate. The theme was spot on, the company was perfectly positioned, and it went on to perform massively well. From 1999 to 2023, Qualcomm’s sales rose more than 9x and EBITDA 12x, very impressive long-term growth rates. Investors who held the stock during that period, however, received a total return of only 154%, underperforming the 410% return of the S&P 500 Index.”
Overall QCOM ranks 2nd on our list of the best undervalued stocks to buy. You can visit 10 Best Undervalued Stocks To Buy Now to see the other undervalued stocks that are on hedge funds’ radar. While we acknowledge the potential of QCOM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than QCOM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
