Shares of semiconductor giant Qualcomm (QCOM +1.29%) are down 34% year-to-date, and now hover near their 52-week low. But the company looks like one of the market's most interesting buying opportunities at these levels. A growing presence in multiple end markets that are bursting with potential and an attractive valuation make buying Qualcomm near its 52-week low look like a no-brainer.
Coming soon to a car near you
Qualcomm is best known for its Snapdragon chips, which go into both Apple's iPhones and Samsung's Android phones, and the handset market makes up 56% of its current revenue. While this is a massive and lucrative market, it can be cyclical, and as semiconductors go into more devices than ever before, it makes sense for Qualcomm to take its capabilities to new markets and diversify its revenue streams. That's why Qualcomm's expanded presence in the automotive market makes a lot of sense. Qualcomm just held an investor day emphasizing its automotive strategy at the Classic Car Club of Manhattan, where it announced that its pipeline of design wins for its Snapdragon "digital chassis" now stands at $30 billion, up from $19 billion at the end of the quarter that ended in June. This is up from $13 billion at the company's 2021 investor day.
The future could be even better. Qualcomm says that it sees the total addressable market for its automotive products as $100 billion. As more vehicles feature advanced and autonomous driving, digital cockpits, and other features that require advanced semiconductors, Qualcomm foresees the Qualcomm content per vehicle ranging from $200 for a more economic vehicle to $3,000 or more for a higher-end model.
Enter the metaverse
The automotive market isn't the only end market with massive growth potential where Qualcomm is planting its flag -- the company is also staking a claim to the metaverse. We're still in the early innings of what the metaverse will eventually become, but right now Meta Platforms (META +1.81%) and its Oculus Quest headset is probably its most visible element -- and guess what powers it? Qualcomm's Snapdragon. While Mark Zuckerberg's push into the metaverse has been a divisive move among investors and analysts, Meta Platforms is investing a lot of money into the metaverse, and Qualcomm should be a key beneficiary -- the two companies just announced a multi-year strategic partnership to "develop premium experiences that leverage custom Snapdragon XR Platforms for the Meta Quest platform."
While the metaverse opportunity is not yet as concrete as the automotive market, McKinsey & Company, a top business consultant, views the metaverse as a $5 trillion opportunity by 2030, so this has the potential to become a lucrative market for the winners that carve out space for themselves there.
Remarkably cheap valuation
For a company with all of these exciting irons in the fire, Qualcomm trades at a remarkably cheap valuation. Shares trade at about 10.5 times earnings, and they fetch an even cheaper forward multiple of 9.5 times earnings. This is far cheaper than the average multiple for the S&P 500, and about half the multiple for the average stock in the S&P 500's technology sector. Owning a stock at a favorable multiple gives shareholders a nice margin of safety when investing -- you own Qualcomm for the profits it earns in about 10 years, whereas when buying a more richly valued stock in the space, like Nvidia or Advanced Micro Devices, you own the company for the equivalent of what it makes in 40 years or 28 years, respectively. This is no knock on NVIDIA or Advanced Micro Devices, as they are both great companies, but Qualcomm looks more compelling at these levels, and likely offers more downside protection as well thanks to its lower valuation.
NASDAQ: QCOM
Key Data Points
Attractive mix of shareholder returns
In addition to its attractive valuation, another reason to own Qualcomm is for its safe and growing dividend. Shares of Qualcomm currently yield 2.5%, which is above the market average for the S&P 500. Earlier this year Qualcomm increased its quarterly dividend payout from $0.68 a share to $0.75. The company has increased its annual dividend payout every year since 2013, and the payout has tripled since that point in time. Qualcomm is a great dividend growth stock with more growth likely to come in the future, as demand for its products isn't going away any time soon. Furthermore, Qualcomm's dividend looks safe, as its dividend payout ratio is a very comfortable 25%, which also gives Qualcomm plenty of room to keep increasing the dividend over time. While the yield of 2.5% may not jump off the page, the likelihood for further dividend growth and the low payout ratio make this a top dividend stock to own.
In addition to this dividend payout, Qualcomm is also seeking to enhance shareholder returns using share repurchases. Last year the company announced the authorization of a $10 billion share repurchase program. During the most recent quarter, which ended in June, Qualcomm bought back $499 million worth of stock, following up on $764 million of repurchases during the quarter that ended in March.
Buying Qualcomm looks like a no-brainer
Qualcomm is planting its flag in some exciting end markets that have a lot of growth potential, which could add substantial earnings and revenue growth to its already-strong mobile business. But the market doesn't seem to be giving it much credit based on its inexpensive valuation. Between its attractive valuation, growing dividend, and major growth potential, buying Qualcomm near its 52-week low looks like a no-brainer, and investors can buy and hold Qualcomm for years to come.
