Is Qualcomm Inc. (QCOM) the Best Large Cap Stock To Buy Now?
We recently compiled a list of the 12 Best Large Cap Stocks To Buy Now. In this article, we will look at where Qualcomm Inc. (NASDAQ:QCOM) ranks among the best large cap stocks to buy now.
Is the Next Bull Cycle Picking Up?
Analysts’ anticipation about the Fed initiating three rate cuts of 25 basis points each, starting in September, has become a hot topic in the current market. While some economic indicators show resilience, recent market fluctuations have raised concerns about deeper rate cuts being overestimated. Yet, a recession appears unlikely, and the steady economic growth suggests a cautious but positive outlook for the markets.
But the question is: why is a recession even being talked about? We discussed this earlier in another one of our articles, 12 Best Small Cap Tech Stocks to Buy, here’s an excerpt from it:
“Inflation in the US may have reached a 3-year low of 2.6% in August, the lowest rate since March 2021, according to a survey of economists by FactSet. Core inflation, excluding food and energy prices, is believed to have remained at 3.2%.
Inflation peaked at a 4-decade high of 9.1% in June 2022 as the economy rebounded rapidly from the pandemic recession. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to a 23-year high and significantly increasing borrowing costs across the economy. The easing of inflation may pave the way for the Fed to start cutting interest rates next week.”
Binky Chadha, Deutsche Bank’s chief global strategist, joined CNBC last week to discuss what’s next for stocks, given the US elections — particularly the typical pullback seen in the month leading up to closely contested races, where markets often decline by 4% to 5%.
Chadha thinks that this trend, driven by uncertainty, prompts investors to seek protection against volatility, leading to a dip in stock prices. This decline usually hits its lowest point on election day, followed by a substantial rally if the election outcome is clear and resolves uncertainty. Historical instances, such as the Bush/Gore election, show that unresolved outcomes can exacerbate volatility, as seen with further market declines during that period.
Understanding market trends about elections is crucial, as delays can significantly impact investor confidence and overall market behavior. The current market is led by a significant rally in the S&P 500, reaching record highs despite challenges like high interest rates and geopolitical tensions. While election years typically see market weakness, the incumbency of both major party nominees may reduce uncertainty this cycle. However, potential volatility remains as the election approaches and corporate earnings are closely examined against high expectations, according to Chadha.
Chadha further talked about the Bush/Gore election and when a Supreme Court resolution seemed imminent, the market rallied. However, this was followed by a continued market decline. While relying on a single instance for broader conclusions is not ideal, this case reflects general market behavior. It’s important to recognize the prevailing positive trend, despite experiencing two pullbacks.
Chadha said that while the S&P 500 has shown unusual recovery dynamics, peaking with 26% year-on-year sales growth, this growth has slowed unsustainably over the past 2 years. As sales growth decelerates, concerns about potential downturns rise, leading to increased inquiries about negative sales growth in the S&P 500.
While Chadha acknowledges that S&P 500 sales growth has returned to pre-pandemic levels, implying stability, there’s also a decline in the labor market, particularly in private payrolls over the past 7 months. Such a mixed sentiment should be given into and used as a buying opportunity. With that, we’re bringing you a list of the 12 best large-cap stocks to buy now.
Methodology
For this article, we have defined large cap stocks as those trading between $20 billion and $200 billion. We sorted our screen by market cap and looked through the top 25 stocks that matched our criteria. We then selected 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? 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).
Qualcomm Inc. (NASDAQ:QCOM)
Market Capitalization as of September 13: $186.67 billion
Number of Hedge Fund Holders: 100
Qualcomm Inc. (NASDAQ:QCOM) is a multinational corporation that creates semiconductors, software, and services related to wireless technology and owns patents critical to the 5G, 4G, CDMA2000, TD-SCDMA, and WCDMA mobile communications standards, used in devices like smartphones, tablets, laptops, and IoT devices.
The company’s Snapdragon 8 Gen 3 Mobile Platform can power smartphones to process up to 10 billion parameters of GenAI models, making them great personal assistants. In June, Microsoft announced that its Surface Laptop and Surface Pro will be equipped with Qualcomm Inc. (NASDAQ:QCOM) chips, capable of performing various AI tasks without needing an internet connection.
The company is also a key partner for Microsoft in delivering Copilot+ PCs, available from major brands across 20 countries and 47 retailers. The retail presence will expand to over 60 retailers in 25 countries.
It maintains a strong position in the handset market, led by Snapdragon Gen 3. Revenues from Chinese OEMs surged by over 40% in the first half of fiscal 2024, indicating robust demand beyond its major customers. Microsoft is collaborating with OEMs on new Copilot+ PCs, including models priced as low as $700 without sacrificing performance, for 2025.
Overall, the company recorded $9.39 billion in revenues in FQ3 2024, up 11.24% year-over-year. The earnings per share were $2.33. Licensing business revenues were $1.3 billion. In automotive, it secured more than 10 new design wins.
Wall Street expects its revenue to grow by 10% in 2025 and earnings to rise by 13.10%. The company is strategically positioned for robust growth, driven by its cutting-edge AI technologies and expanding presence in the automotive and IoT sectors. It’s held by 100 hedge funds. The largest stake is held by Matrix Capital Management and is worth $1.99 billion.
O’keefe Stevens Advisory stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its Q2 2024 investor letter:
“During the quarter, the A.I. rally broadened beyond the obvious players of Nvidia, AMD, and hyperscalers. QUALCOMM Incorporated (NASDAQ:QCOM), a long-standing investment, is gaining recognition for integrating artificial intelligence into mobile phones. Qualcomm’s A.I. on-device capabilities enable real-time language translation, improved voice recognition, and sophisticated imaging techniques as A.I. becomes more integral to mobile experiences. Qualcomm benefits by leading the market in providing robust, efficient, and versatile A.I. solutions. A.I. could be the first technology advancement in several years to accelerate the smartphone replacement cycle as users desire these advanced capabilities.”
Overall QCOM ranks 3rd on our list of the best large cap stocks to buy. While we acknowledge the potential of QCOM as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high 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 was originally published on Insider Monkey.