Monday, February 3, 2020

QCOM 11% gain in 33 days

QCOM has been off my radar recently due to their debt.  Qualcomm broke out a few months back when some lawsuits were settled and QCOM was able to pursue acquisitions.  Take a look at the fundamentals I use for my first screen of a stock and you will be see some good metrics, but also one point of concern.

QCOM Earnings Dividend
 Earnings > Dividend $3.62 $2.48
 Debt to Equity 3.25
 Dividend Yield 2.87%
 3 Yr. Rev. Growth 1.10%

Let's look at their debt with one measure which is D/E ratio knows as debt to equity ratio. This is the point of concern. Presented in the table below are their most recent four quarters of D/E ratio which shows QCOM managing the debt reasonably well.

9/30/2019 $13.44B $4.91B 2.74
6/30/2019 $13.43B $5.46B 2.46
3/31/2019 $15.41B $3.87B 3.99
12/31/2018 $15.39B $3.62B 4.25

Another measure is to see if QCOM can continue to pay down that debt is cash flow; not just earnings but cash flow.   In the chart below you can see their most recent quarterly cash flow versus liabilities.   It appears they have adequate cash flow to pay their obligations but cash flow is volatile lately.   

With that caveat in mind, I am adding to QCOM today and selling this call.   I selected an expiration date after the next ex-dividend date of 3/4/2020.   I selected a strike price that will deliver a reasonable gain pretty quickly; in 33 days.   The table below presents the call as I executed today.

Stock Price on Open Call Expiration 
QCOM $86.34 3/6/2020
Cost Basis:   2/3/2020 $86.30
Strike Price: $94.00
Call Premium:  $1.25
Dividend  3/4/2020 $0.620
Call Yield on Basis 1.45%
Call + Dividend Yield on Basis 2.17%
$ Gain if Assigned $9.57
Max Return  if Assigned 11.09%

Take a look at how the call worked out today and then use the interactive call calculator to determine how the call return would look for the expiration, strike and premium you might use.

Enter Cost Basis:
Enter Strike Price:
Enter Call Premium:
Enter Dividend if ex-div before Option Expiration:
Call Yield
Total Return Percent if Assigned
*Not all browers support the interactive tool.  You can always use the tool in the call options page.

Income investing is very challenging in this low interest rate environment.  Very hard for seniors. We have to go out on the risk curve meaning we need to be in equities to get any sort of income.  Right now we use dividend stocks and sell calls on those.

M* MoneyMadam
Disclosure:  Long QCOM with calls