This article is part of our Rising Star Portfolios series.
Today, I'm going to put some of the cash I have laying around in my "Bits Portfolio" to work on what I consider to be some of the more no-brainer themes for the year in a "Trends for 2011 Basket." My first pick, Cirrus Logic (Nasdaq: CRUS ) , was a small semiconductor company that came with risks, but also underappreciated potential for outsized returns. Today's picks are a bit safer.
In fact, they're both leaders in their respective fields. However, just because these companies are each giants of their industries doesn't preclude them from being strong outperformers. I believe each company is poised for continuing gains in 2011 that should surpass already lofty expectations. Here are the two companies I'll be buying tomorrow:
|EMC (NYSE: EMC )||Leader in centralized storage, valuable virtualization component||Our Top 5 Tech Stocks for 2011: EMC|
|Qualcomm (Nasdaq: QCOM )||Explosion in mobile data, leader in mobile processors||Today's Buy Opportunity: Qualcomm|
As you can see from the column on the far right, I've recommended all these stocks for different Motley Fool series in the past. Today, I'll be buying them in my own portfolio. However, since I recommended Qualcomm in July, it's up 33%. Thus, it's worth revisiting why the company is still a compelling buy at today's prices, and what's changed in the past six months. I'll also review my position on EMC, though my recommendation has changed little since mid-December.
When I first recommended Qualcomm, I pegged its fair value at around $50. Today, the stock trades around $52 per share. So why do I now recommend buying Qualcomm past its original fair value?
For one thing, the Android mobile OS has continued accelerating at huge growth rates, which has been important for a couple of reasons. First, Android has helped stabilize average phone selling prices. While there are long-term fears of further price battles between Android phones, encouraging users to upgrade to smartphones is a win for Qualcomm's licensing business any way you slice it.
Second, Android adoption has been a huge boon for Qualcomm's chipset business. If you look at smartphone market share figures in the third quarter of 2009, Android commanded 3.5% of the market. A year later, it commanded 25.5% of the market. The biggest market-share losers in this shift were Research In Motion (Nasdaq: RIMM ) and Nokia. Both those companies have strong relationships with other semiconductor companies for phone processors, whether it's Research In Motion with Marvell (Nasdaq: MRVL ) , or Nokia with Texas Instruments. Considering that by some accounts, Qualcomm has its chips in 77% of Android phones, and that its Snapdragon processor scored wins in the entire launch lineup of Microsoft's Windows Phone 7, the shift in smartphone demand has benefited Qualcomm more than just about any other company. Today's buyout of Atheros (Nasdaq: ATHR ) should only further cement Qualcomm's leadership in mobile processors, since it can now further integrate valuable components into its chipset designs.
Finally, the boom in connected devices of all kinds (not just smartphones) is benefiting the company. Just a half-year ago, this scenario was less than assured. However, the phenomenal success of the iPad has largely validated the idea. This not only presents Qualcomm with underappreciated growth opportunities in emerging markets, where this generation of consumers will grow up on wireless rather than wired data, but also gives the company growth in chipsets and licensing fees. Remember, if it has a 3G radio, Qualcomm is collecting some level of royalties from the device.
Qualcomm might look pricey, but given its cash position and placement at the center of the mobile boom, it should remain pricey throughout the year.
Since I recently recommended EMC as part of our "Best Tech Stocks for 2011" series, I have fewer updates on the company. Since my recommendation, the disparity in value between VMware (NYSE: VMW ) , of which EMC owns 80%, and its parent company has only continued to grow.
I'll reiterate that VMware on its own is too pricey for my tastes. However, giving EMC credit for just half of its stake in VMware still means that the company is trading at substantially cheaper rates than its direct-storage peers. As I see it, EMC's the best way to get a toe in cloud-computing trends, without being swept up in the nauseating P/E levels at which just about any company in the industry now trades.
More buys to come?
While I'll be buying both EMC and Qualcomm tomorrow, there are more buys and stocks to add to my watchlist in the coming days as part of my "Trends for 2011 Basket." These won't all be the biggest highfliers, but they're a solid technology core for the portfolio.