Qualcomm: An IDEAL Stock

As the Chief Investment Strategist for Personal Finance, I am often asked by our readers what stocks are the best to own when the market doesn’t know where’s going. And with the S&P 500 going almost nowhere since July, that’s a question I hear quite a bit.

However, not all stocks have been stuck in neutral while the Fed dithers on its next rate hike and voters fret over who will next occupy the Oval Office. For example, Qualcomm (QCOM) stock is up 30% since early July after having spent the previous three months struggling to gain traction. But my IDEAL stock rating system told me it was significantly undervalued at a share price of $52, which is why I hung on to it in the PF Growth Portfolio even though some subscribers questioned the decision.

I can’t blame them, as I was equally frustrated with Qualcomm’s execution glitches over the past couple of years. First, it became embroiled in a massive licensing fee dispute with Chinese regulators that took years to settle. Then, its Snapdragon processing chip was accused by some customers of having an overheating problem, resulting in several agreements being cancelled or renegotiated.

But in the end Qualcomm’s deep well of financial and human capital fixed both issues, while buying back a massive amount of its own stock to placate frustrated shareholders. More recently, Qualcomm has been negotiating to buy NXP Semiconductors to improve its chip making capacity. Not many companies can outright buy a competitor with a market value of $35 billion.

Now trading just a few bucks shy of $70, QCOM exemplifies the importance of sticking to a disciplined investment process when the markets are wavering. Six months ago, when QCOM was trading at $50, my IDEAL system scored it highly for dividend yield, cash flow, and relative valuation. After thirty years of investing in the stock market I’ve learned companies that possess those traits in abundance will outperform than those that don’t, so I stuck with it.

I’m glad I listened to IDEAL and not the little voice inside my head urging me to give up on QCOM when it couldn’t seem to get out of its own way. But the other voice kept reminding me that the cream eventually rises to the top, just as QUALCOMM did over the past ninety days. And so have several other of our portfolio holdings including Best Buy (BBY) +26%, Apple (AAPL) +19%, Marathon Petroleum (MPC) +17%, and Ameriprise Financial (AMP) +16%, during a period of time the index eked out a 3% gain.

It’s sometimes tempting to abandon your investment strategy when you aren’t getting the results you expected, but that’s when it is most important to stick with it. It may take a while to pan out, but if your system is built on strong pillars and you execute it religiously, then sooner or later you will be handsomely rewarded. In fact, that’s why Investing Daily just launched its newest advisory service called Systematic Wealth.

The stock picking formula at the heart of Systematic Wealth, the “Rapid Profits Matrix”, has been in use since 2003, during which time it has issued 1,286 buy and sell alerts. Of those, 61% resulted in gains while the other 39% were losses, producing an average return of +8.8% compared to +2.7% for the S&P 500 index over the same holding periods. I will also be using my IDEAL stock rating system to find other opportunities, like Qualcomm, that are just too cheap to pass up.

That’s a winning formula in anyone’s book, and one that will serve us well in the months to come as uncertainty in the global financial markets builds to a crescendo. Usually the best bargains can be found when the stock market is sending out mixed signals, confusing investors who have no system or process or guide them. If you have a stock picking system that has worked well for you over the years, then stick with it. And if you don’t, then now is the time to get one.