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$QCOM, A Radio Star Very Much Alive And Well (Cestrian Stocks Bulletin #90)

Cestrian Stocks Bulletin
$QCOM, A Radio Star Very Much Alive And Well (Cestrian Stocks Bulletin #90)
By Cestrian Capital Research, Inc • Issue #90 • View online
The grump-pa of cellular is still going strong.

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note’s date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.
C'mon Grandpa! Not Another War Story!
This week’s free issue of Cestrian Stocks Bulletin is cast very much in the mold of last week’s free issue. In which we (a) hope to sell you a subscription to one of our pay services by telling you a hoary old war story about when we stormed the hill and also (b) share with you that there’s money left yet in that idea, in our view. All we ask is that you indulge us in at least reading (a) in exchange for the hopefully useful stuff in (b).
The “Premium” version of this newsletter is published weekly, and costs an almost-free $9/month. It gives you our best stock idea of the week. Which sometimes turns out to be a dumb idea of course - but mostly they have been pretty good ideas. For your barely-there nine bucks you get a “Members Only” idea delivered direct to your inbox weekly. What you choose to do with that idea is, of course, up to you. But we can look you in the eye and say, we’ll never give you an idea that we aren’t acting on ourselves in staff personal accounts and, of course, we always disclose relevant positions.
The Members Only Idea of the Week on 15 October was, buy Qualcomm ($QCOM). We said in that note that the company that put the US on the map in cellular telephony was still going strong and, its position as punching bag sat between the Chinese and US governments aside, the fundamental valuation looked cheap and the chart looked to be pointing up. There was a bunch of boring stuff about cellular radiotransmission protocols too, because (1) there wasn’t much on TV that day and (2) that is in fact the business QCOM is in so we figured we had better say something about them and not just draw charts and such.
Anyway, it was a good idea. Here’s what’s happened to the stock since we published that Buy note.
+27% in a month vs. +7% for the Nasdaq and +5% for the S&P500. Not too shabby.
At this point we should probably tell you that if you want to sign up to the Premium Edition, Members Only version of this newsletter, to get future Ideas of the Week from us - you can do so easily - just click this link. Cancel anytime if you hate it.
Now - back to everyone’s favorite topic, radiofrequency data compression algorithms.
We can’t promise, of course, but we rather think there’s more to come from $QCOM.
In our 15 October note, we said that if our analysis of the QCOM stock chart was correct, our minimum target was $166/share, up from the $130/share at which the stock closed that day. Well, the stock pretty much just hit that minimum target, rather faster than we expected, it has to be said. The chart below is our original 15 October analysis, no changes to the lines drawn, labels applied etc, save that time has passed and the stock has moved up.
Source: TradingView, Cestrian Analysis
Source: TradingView, Cestrian Analysis
So where next? The stock is up against its all time high and so in a weak market or a troubled company we might expect some near-term weakness now, as the stock rejects making a new high. We don’t expect that in this case. We expect that the stock can keep moving up (and we continue to hold the name in staff personal accounts on that basis).
All-time-highs are strange places from which to analyze stocks and take guesses about the future direction thereof, because by definition you are in uncharted territory. Earlier in our investing careers here at Cestrian this used to cause us great consternation. Buy-the-dip is an easy strategy in bull markets - and we are most certainly in a bull market - you look at whence the stock came, where it is now, figure there’s a good chance it moves back up, buy the thing and hope. Sorry, not hope, invest wisely, that’s it.
But what if there’s no dip? What if the thing is just pointing up? Should you sell? Wait for a dip? What?
Well there’s no perfect answer of course, but there are tools to help you decide. Here at Cestrian Towers we favor Elliott Wave analysis for such questions, as you will know if you’ve read some of our stuff. You can get all high falutin about Elliott Waves but bottom line they try to work out stock price moves by emulating psychology. The basic notion is that we humans (and our bots too for the most part, since we programmed them … for now at least!) get happy in 5 steps up, and sad in 3 steps down. That’s in a bull market. Or in a bear market, where all around us is misery, we get sad in 5 steps down and happy in 3 steps up. Not so difficult.
The other element to bring in here is the Fibonacci sequence and before you decide to go to your meeting after all, don’t worry. Again you can get all high minded about this but in essence there are a bunch of constants which re-appear in nature all based around what artists and architects refer to as the ‘golden ratio’ of 1:1.618. And all we need to know for our purposes is that big boys’ trading systems are set to use those rules. So when you see us use Fib levels in our work, it’s partly because we secretly suspect that brain structure also reflects the golden ratio but it’s mainly because we know that a ton of market participants trade according to these levels, so they become a self-fulfilling prophecy.
Anyway, if you take the twin tools of Elliott and Fibonacci, you can say that QCOM might yet run to $234/share before turning down. We cannot emphasize that “MIGHT”, enough, because of course, nobody knows. But so far the stock has traded more or less picture-perfect according to the Elliott / Fibonacci pattern - again, that’s not magic by the way, it’s because these tools are behavioral tools, they say nothing about the intrinsic value of a security, whatever that might be, they just help you work out how far buyers will push the stock before they get scared and start selling.
From the above chart you can say, OK, looks like we are in that final 5th wave up. You can also say that the Wave 3 up - that’s the move from the Covid lows of c.$55/share in March 2020 to the c.$167 “peak tech” price in February 2021 (most all of tech dumped at that point and QCOM was no exception) - was a fairly standard 1.618 extension of the Wave 1 up which was from January 2019 to January 2020 before Covid hit. So, the question is, how what will be the “length” of that Wave 5 (meaning the stock price movement) that we seem to be in?
Our best guess is that Wave 5 is going to run, because, one, we think the market is going to run for the next few months, and, two, we think tech is going to run faster than the market at large and, three, we think cellular is going to be a hot area in tech because 5G is now upon is in earnest, and QCOM revenues are directly linked to 5G rollouts more than is the case for most stonks.
And in that context, we think Wave 5 can be equal to the length of Wave 3, meaning a +$112 move up off that Wave 4 low you see of $122. So let’s call that a price target for QCOM of $234 within maybe a year. Pure judgment of course, anything could happen, but that’s our best guess and we are holding QCOM in staff accounts on that basis.
Cestrian Capital Research, Inc - 15 Nov 2021.
DISCLOSURE: Cestrian Capital Research, Inc staff personal accounts hold long position(s) in QCOM.
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