QCOM: technical vs. fundamentals

Normally I don’t write about Qualcomm’s stock, but Qualcomm’s stock value got about the most prominent discussion possible on Thursday.

On his nightly CNBC show, retail stock pundit Jim Cramer spent several minutes Thursday night analyzing the last few months of momentum on Qualcomm’s stock, in his weekly segment called “Sell Block.” A written summary is provided on the Mad Money website (and also in a separate article).

He started by talking about Qualcomm’s fundamental business, including a simplified version of its business providing IPR and chips for cellphones. Cramer said: ”It reminds me of the old Intel inside ads. It should be Qualcomm inside.“

But the impetus for the discussion was a very negative report from technical analyst Helene Meisler. To briefly summarize

• Any rise in Qualcomm’s stock price is blocked by its January peak.
• The upward trends that started earlier this year has stalled.
• When there is higher stock volume, the trend on those high volume days is “telling the truth,” and Qualcomm had some ugly down high-volume days.
• The stock is heading down towards $30 and won’t break $40 again. (The stock closed at $33.84 Thursday).

Cramer, on the other hand, argues that the business fundamentals favor QCOM. It has been taking share against its rivals. It earns $4-$8/phone royalties (average phone price $200), with 90% margin. Worldwide 3G penetration to go from 40% to 70-80% over next 3 years. This week, Qualcomm even won cooperation from former archenemy Nokia.

Cramer was also not surprised by the lower CY 2009 earnings guidance that Qualcomm provided with last month’s earnings release. To Cramer (and to me), there is the implication that Qualcomm assumes that the economic recovery is pushed back at least to 2010 — a realistic assumption.

Cramer thinks it’s a good deal because it’s down from its $56 peak (last August 14). As Cramer said, “A lot of the bad news is baked in” praising its “pristine balance sheet.”

I don’t know which one is right, but I know they both can’t be right. If over the next 6 (or 12) months, the stock never breaks $40 and ends below $30, clearly Meisler. If it ends above $40, Cramer is right. If it just muddles along between $30 and $40, Meisler isn’t wrong, but that’s a pretty weak sell call — particularly if (as I expect) the broader market is sideways or down for the next 18-24 months.

Note: Cramer owns QCOM for his charitable trust. I do not own any shares.