High-Quality Technology

In This Issue: High-Quality Technology The New Normal - Six Years Later Profit from a $30 Trillion Wave of Change China and India are in the midst of what researchers are calling "the biggest opportunity in the history of capitalism." They're talking about the explosion of the middle class in both countries. It's a group of consumers that will outnumber the population of our entire country by 7 to 1 in the next few years. I've found five stunningly easy ways to profit without ever touching a share of risky Chinese or Indian stocks. Get the insanely profitable details here. High-Quality Technology 2/03/2015 By Thomas Scarlett Qualcomm (NSDQ: QCOM) has been one of the most impressive performers in the tech sector for at least three years. It recently suffered a setback, but the market's overreaction may be an opportunity for latecomers to acquire a good long-term growth stock. The chipmaker recently lowered its outlook for fiscal 2015 following news that Samsung Electronics, one of its biggest customers, decided to pass on its new Snapdragon 810 chip due to overheating during testing. But the company still reported first-quarter revenue rose 7% to $7.1 billion, beating analysts' estimates of $6.94 billion. Earnings for the first quarter rose 5% to $2 billion, or $1.17 per adjusted share. The company said it now expects fiscal 2015 revenue of between $26 billion and $28 billion, down from a prior guidance of $26.8 billion and $28.8 billion. It also reduced its 2015 adjusted EPS guidance to between $4.75 and $5.05, down from a prior range of $5.05 to $5.35. "We delivered a strong quarter, achieving record quarterly revenues and operating income, and we also are very pleased to have resolved our previously disclosed dispute with a licensee in China," said Steve Mollenkopf, CEO of Qualcomm Inc. "Looking ahead, we have lowered our revenue outlook for our semiconductor business for the second half of the fiscal year and lowered our EPS expectations. These changes reflect our revised expectations related to earnings, sales to a large customer and heightened competition in China." China continues to present significant opportunities for the chipmaker, particularly with the rollout of 3G/4G LTE multimode, but also presents significant challenges, as its business practices continue to be the subject of an investigation by the China National Development and Reform Commission (NDRC). But the market's reaction to the news about Samsung -- the stock quickly dropped from 72 to 63 before beginning a rebound -- was excessive. Qualcomm has lots of irons in the fire other than the Samsung deal. Qualcomm chipsets power a majority of next-generation smart mobile devices including smartphones, tablets and more---a sector that is growing at double-digit rates compared to slower growth for traditional computing devices such as laptops, desktop and servers. Qualcomm conducts its business through the following four segments: Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL), Qualcomm Wireless and Internet (QWI) and Qualcomm Strategic Initiatives (QSI). Qualcomm is committed to increasing shareholder value. Since 2003, the company has used its strong cash flow to return $19.5 billion to shareholders through dividends and stock buybacks and currently has over $2 billion authorized for additional buybacks. In fiscal 2014, Qualcomm spent $1.43 billion to buy back about 25 million shares. Dividends have grown steadily over the years and are up ten-fold from $0.025 per quarter in 2003 to $0.25 currently, without missing a beat through the economic downturn in the turbulent 2008-2009 economic period. Current dividends are up 16 percent over year-ago levels. Qualcomm pays $0.25 quarterly ($1 annualized), a low but steadily growing payout, with a dividend yield of 1.6 percent. Bullishness on Qualcomm is primarily driven by its positioning in the mobile chipset market and strong IP portfolio. While mobile phone penetration is fairly high, worldwide smartphone penetration (including wireless broadband devices such as tablets, data recorders such as utility meters, etc.) is yet to catch up. In addition, Qualcomm enables smart mobile applications through the SnapDragon line of processors and is driving newer mobile and location-oriented applications, wireless within the home, smart wireless devices for utilities, and low-power always-on wireless modems for utility meters. This demand for smart mobile devices and services has translated into substantial revenue and earnings growth for Qualcomm. This demand is expected to continue through 2018, at which time growth will likely taper off. Users generally still indicate clear preferences for Apple devices. Moreover, Apple's iPad and iPad mini also feature Qualcomm chipsets, so the latter company should gain from strong iPad sales (outperforming the iPhone). In addition, future Apple devices such as Apple TV may also include Qualcomm chips. Qualcomm's Snapdragon processor also is a part of Microsoft's (NASDAQ: MSFT) Windows 8 mobile devices, which have garnered favorable reviews and could likely see a boost in sales for their convenience and integration with Windows desktops, applications and services. Due to the recent price decline, Qualcomm's price-earnings ratio is just 14. That's a very low level for such a strong tech performer. We think the stock rates a buy up to 76. Tom Scarlett is an investment analyst with Personal Finance. Prepare for the Worst It's funny how a month changes everything. Thirty days ago, the market closed under the label of "extreme fear." Today, it's back to greed. And that should have you worried. Because when most investors think it's a good time to buy and get greedy, things are about to take a turn for the worse. Here's how to protect yourself and your hard-earned money. The New Normal - Six Years Later 1/30/2015 By Jim Pearce In May of 2009 the phrase "the new normal" entered the lexicon of the financial media. The term was used by PIMCO analyst Mohamed El-Erian to describe an economic landscape consisting of stagflation, high unemployment, and slow growth. At a time when nearly everyone was grasping for a narrative that could succinctly explain an almost overwhelming deluge of complex financial issues, El-Erian's letter provided the perfect sound-bite to fill that void. In a public letter than attracted global attention, El-Erian used the phrase "The New Normal" as a headline above this paragraph; "For the next 3-5 years, we expect a world of muted growth, in the context of a continuing shift away from the G-3 and toward the systemically important emerging economies, led by China. It is a world where the public sector overstays as a provider of goods that belong in the private sector. It is also a world in which central banks and treasuries will find it difficult to undo smoothly some of the recent emergency steps. This is particularly consequential in countries, such as the U.K. and the U.S., where many short-term policy imperatives materially conflict with medium-term ones." He went on to hypothesize "the following potential configuration: We would look for financial rehabilitation in the U.S. to occur in the context of low growth and an eventual inflationary bias down the road. The U.K. would also be stuck in a low growth world, but with greater vulnerability to domestic and/or external financial instability. Core Europe will also grow slowly, influenced by its historical inflation phobia and concerns for the integrity of the European Union. Japan will continue to face growth headwinds as its economy is too encumbered by fiscal and demographic issues. Emerging economies will bifurcate more clearly into two groups. Those with weak initial conditions will return to the old emerging market paradigm that alternates between austerity and financial instability; those with strong initial conditions will maintain their development breakout phase; albeit not at the torrid pace of recent years." In fairness to El-Erian, this letter was released only two month s after what would later prove to be the bottom of a steep stock market decline when the world was in a general state of panic (the Dow Jones Industrial Average would close at 6,547.05 on March 9th of that year, and is now above 17,000). His timing was impeccable in terms of identifying a clear dividing line between the past and future, but some of his predictions -- especially those regarding inflation -- have not (yet) materialized. Now that it has been more than five years since those predictions were made and inflation remains low while unemployment is dropping and GDP is growing in the U.S., it is tempting to disregard El-Erian's prediction as being overly influenced by the dark mood prevalent at the time. But the fact of the matter is many of his other predictions did prove true, and still persist today. It is doubtful El-Erian could have anticipated the degree of central bank intervention here in the U.S. that would transpire over the next five years, culminating in a massive program of quantitative easing that, thus far, has avoided the stagflation scenario he envisioned. So, his first bullet point has not yet proven true, and the near term outlook for inflation remains muted. However, his other four predictions were pretty much on the mark (pun intended), as just last week the European Central Bank introduced its own version of quantitative easing in an attempt to avoid deflation. Also this month, the Swiss National Bank removed trading limits on its currency (the Swiss franc) against the Euro, calling into question the integrity of the European Union. More importantly, as investors we should be asking ourselves what we can learn from El-Erian's pre-US Q.E. worldview, as that may inform the post-US Q.E. world we have now entered. Heightened volatility in the stock market suggests mounting concerns over our ability to continue to grow GDP in the face of a strengthening dollar, and a decline in wage growth (discussed by my colleague Bob Frick in this column last week) may portend a weaker middle-class with less money to spend on housing, automobiles, and consumer goods. If nothing else, we shall soon get an answer to the question of whether or not Q.E. was an exercise in kicking the can down the road as some alleged at the time, accomplishing little more than simply delaying the stagflation scenario El-Erian anticipated. While I can see the slow growth half of that scenario coming true, I do not see the potential for a meaningful hike in inflation this year or next. Many investors bailed out of the stock market in 2009, perhaps in part due to El-Erian's pessimistic view of things to come. Instead, they chose to flee to the safety of cash and treasury securities, driving yields on them down to historic lows while missing out on a stock market recovery that almost nobody predicted. That said, I admire the courage of people like Mohamed El-Erian who put their unambiguous opinions in writing and share them with the world, knowing one day they may be proven wrong. In El-Erian's case, he may have gotten certain elements of the story wrong, and may have been premature in the timing of other aspects of it. But for all of us, one lesson we can draw from this exercise is already clear: how we respond to the fear of the unknown is more important than attempting to know it. This article originally appeared in the Mind Over Markets column. Never miss an issue. Sign up to receive Mind Over Markets by email. Pocket $80,000 EXTRA With This One Simple Investment Change Warren Buffett made $4.9 billion in cash by making this one small change to his investment strategy. It's the closest thing you'll ever get to almost NEVER losing money while investing. I've made $226 every day for the past 1,248 days. Is it time for a change and more money in your pocket? Details here. You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch, published by Investing Daily. To ensure delivery directly to your inbox, please add postoffice@investingdaily.com to your address book today. Email Preferences | About Us | Premium Services | Contact Us | Privacy Policy Copyright 2015 Investing Daily. All rights reserved. Investing Daily, a division of Capitol Information Group, Inc. 7600A Leesburg Pike West Building, Suite 300 Falls Church, VA 22043-2004 U.S.A.