Shares of Qualcomm (NASDAQ:QCOM) have certainly been on a wild ride over the past month. After trading at the $90 level in early May, QCOM has since plummeted over 25% . While some of the selling is warranted given the recent ruling, Qualcomm stock has dropped too far, too fast. Time to be a bargain basement buyer of QCOM at current levels.
The impetus behind the original spike to $90 was a settlement with Apple (NASDAQ:AAPL). The agreement provided for royalty payments from Apple to Qualcomm that should provide an additional $2.00 in EPS for QCOM. This removed an ongoing concern for investors and also led to a big spike in the P/E multiple for Qualcomm stock (see chart).
Since the settlement , however, the P/E multiple for QCOM stock has dropped dramatically, mostly due to a FTC ruling against Qualcomm. The FTC ruling, however, will have no impact on the Apple royalties. Qualcomm is looking like a decent value at current levels.
Qualcomm stock is looking extremely attractive from a technical perspective. QCOM is the most oversold it has been in the past several years on almost every metric. 9 day RSI printed at 20 before finally turning higher. MACD is at the lowest level by far with a reading below negative 2 prior to firming. Bollinger Percent B also went negative before regaining ground yesterday. Previous instances when QCOM reached such extremes proved to mark significant intermediate term lows in Qualcomm stock.
Most importantly. QCOM finally had an up day yesterday. Qualcomm stock traded to new recent lows below $65 before rallying to close higher on the day at $65.76. This type of reversal pattern, especially after such a massive drop, is many times an indication that the sellers may finally be exhausted.
Investors looking to add a chip and tech stock to the portfolio should consider Qualcomm stock at current levels. Option implied volatility is at the 66th percentile meaning option prices are comparatively expensive. Selling a July $70 call at $1.80 would reduce the risk by the premium received, although capping off the upside as well.
Option trades may want to sell some downside puts to position to be a buyer on further weakness. A sale of the QCOM July $60 puts would bring in $125 in option premium with the obligation to be a buyer of QCOM at $58.75.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatili
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