This Metric Says You Are Smart to Sell QUALCOMM, Inc. (QCOM)

QUALCOMM, Inc. (NASDAQ:QCOM) is one of the most widely discussed stocks on the blogosphere, and it has a particularly high (if not unreasonably high) following amongst Wall Street analysts. With that being said, there’s one data point that some investors are overlooking when analyzing the company, and it is pointing toward bearishness.

In the eyes of many investors, hedge funds are assumed to be useless, old investment tools of a period lost to current times. Although there are over 8,000 hedge funds with their doors open in present day, this site looks at the top tier of this club, about 525 funds. It is assumed that this group controls the majority of the smart money’s total assets, and by tracking their best stock picks, we’ve determined a few investment strategies that have historically outstripped the S&P 500. Our small-cap hedge fund strategy beat the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 33 percentage points in 11 months (find a sample of our picks).

Just as key, optimistic insider trading sentiment is another way to analyze the marketplace. Just as you’d expect, there are lots of reasons for an insider to drop shares of his or her company, but only one, very obvious reason why they would initiate a purchase. Plenty of academic studies have demonstrated the market-beating potential of this strategy if “monkeys” know where to look (learn more here).

Furthermore, let’s analyze the recent info about QUALCOMM, Inc. (NASDAQ:QCOM).

What have hedge funds been doing with QUALCOMM, Inc. (NASDAQ:QCOM)?

Heading into Q3, a total of 89 of the hedge funds we track were long in this stock, a change of -7% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully.

Out of the hedge funds we follow, Stephen Mandel’s Lone Pine Capital had the biggest position in QUALCOMM, Inc. (NASDAQ:QCOM), worth close to $569.1 million, comprising 2.8% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Fisher of Fisher Asset Management, with a $551 million position; the fund has 1.4% of its 13F portfolio invested in the stock. Other hedge funds with similar optimism include David Blood and Al Gore’s Generation Investment Management, Jeffrey Tannenbaum’s Fir Tree and Panayotis Sparaggis’s Alkeon Capital Management.

Because QUALCOMM, Inc. (NASDAQ:QCOM) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds that slashed their entire stakes in Q1. At the top of the heap, Alan Fournier’s Pennant Capital Management said goodbye to the biggest stake of the 450+ funds we track, comprising an estimated $190 million in stock, and Rob Citrone of Discovery Capital Management was right behind this move, as the fund dumped about $166 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 7 funds in Q1.

What do corporate executives and insiders think about QUALCOMM, Inc. (NASDAQ:QCOM)?

Insider buying made by high-level executives is particularly usable when the company in focus has seen transactions within the past six months. Over the last 180-day time period, QUALCOMM, Inc. (NASDAQ:QCOM) has seen zero unique insiders purchasing, and 19 insider sales (see the details of insider trades here).

We’ll go over the relationship between both of these indicators in other stocks similar to QUALCOMM, Inc. (NASDAQ:QCOM). These stocks are Echostar Corporation (NASDAQ:SATS), Harris Corporation (NYSE:HRS), Nokia Corporation (ADR) (NYSE:NOK), Motorola Solutions Inc (NYSE:MSI), and Ericsson (ADR) (NASDAQ:ERIC). All of these stocks are in the communication equipment industry and their market caps are closest to QCOM’s market cap.

Using the results shown by our analyses, average investors should always pay attention to hedge fund and insider trading activity, and QUALCOMM, Inc. (NASDAQ:QCOM) applies perfectly to this mantra.

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