(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NXPI.)
Qualcomm Inc.'s (QCOM) stock price finds itself at a crossroads, one which could send the stock surging by about 21%, or declining by 24%. It's a boom or bust scenario. The setup in shares is a reflection of the precarious position the company finds itself in, trying to acquire NXP Semiconductors NV (NXPI) while attempting to fend off an acquirer in Broadcom Ltd. (AVGO).
The chart below shows that the stagnation seen in the stock since November is about to end, with a resolution to be known soon, either triggering a sharp rise or fall in the very short term.
Rise or Fall?
The chart for Qualcomm is unusual at this point because the stock nears a breakout at roughly $66, one which could send the stock price to about $80, or a rise of about 21%. But the stock is also near a critical support level around $63, and should the price drop below that support, a decline of nearly 24% awaits, plunging to almost $50.
A Long Wait
Qualcomm has been trying to acquire NXP for over one year now, as the company continues to await the necessary regulatory approvals to close the deal. Another roadblock standing in Qualcomm's way has been the lack of shareholders willing to tender their shares of NXP, seeking a higher bid price. (For related reading, see: Qualcomm's Bid for NXP Still Lacks Investor Support.)
Where the stock price goes from here depends mostly on how the pending deals sway. Shares of NXP are currently trading around $119.50, about 9% higher than Qualcomm's bid price of $110. That's because activist investors such as Elliot Management are looking for a higher price than the one first proposed. If Qualcomm can close the deal at an amount the market deems reasonable and successfully fends off Broadcom's advances, then the market might reward Qualcomm, giving way to the breakout and a sharp rise in price. (For more, see also: Elliot Management Steps Up Efforts to Raise NXP Bid Price.)
However, if Qualcomm pays too much for NXP and causes Broadcom to back off, it becomes the worse case scenario.
Qualcomm finds itself in an awkward position in trying to find a perfect solution to a severe issue. Whatever Qualcomm does, it will determine whether the business remains independent or becomes a piece of a much larger company.
The outcome should be known very soon.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.