Shares of San Diego-based chipmaker QUALCOMM Incorporated (QCOM) rocketed over 15% Thursday after the company topped analysts' fiscal third quarter expectations and announced that it had come to a settlement agreement with Chinese communications giant Huawei Technologies Co. Qualcomm reported adjusted earnings of 86 cents per share on sales of $4.89 billion, with the wireless chip producer benefiting from the nation's 5G cellular rollout. Analysts had expected earnings of 72 cents per share on revenues of $4.8 billion.
Moreover, Qualcomm said that the settlement – which includes money owed from previous quarters and a global patent-licensing agreement – will add about $1.8 billion to its top line and $1.38 in earnings per share during the current quarter. "With the signing of the Huawei agreement, we are now entering a period in which we have multi-year license agreements with every major handset OEM," Qualcomm CEO Steve Mollenkopf told investors, per MarketWatch.
From a technical standpoint, Qualcomm shares smashed through significant resistance at $95 to set a new all-time high after the better-than-expected results. The breakout gap occurred on the largest volume in over a year, indicating conviction behind the move. Active traders could either buy the stock at current levels or wait for a gap fill retracement to the breakout point. In either case, set a profit target that is at least twice the amount risked per share. For example, if risking $5 per share, target a move of $10 or more.
Traders who follow the group should also add these to two chip stocks to their watchlist. Both names reached a new 52-week high in the wake of Qualcomm's Huawei settlement and their own positive quarterly earnings reports.
Skyworks Solutions, Inc. (SWKS)
Skyworks Solutions, Inc. (SWKS) manufactures semiconductors for wireless devices used to enable wireless connectivity. The Irvine, California-based company reported fiscal third quarter earnings of $1.25 per share, comfortably ahead of analysts' forecasts of $1.13 per share. Meanwhile, revenues of $736.8 million trumped the Street expectation by 6.8%. However, the chipmaker's top and bottom line contracted 3.9% and 7.4%, respectively, from a year earlier. Skyworks' Sky5 platform provided growth during the quarter, with companies including Samsung Electronics Co., Ltd. (005930.KS) and Motorola Solutions, Inc. (MSI) using the solution to facilitate their 5G launch. As of July 31, 2020, Skyworks stock offers a 1.47% dividend yield and has gained 18.36% on the year. Over the past three months, the shares have surged nearly 40%.
Since bottoming out in mid-March, Skyworks shares have remained in a steady uptrend. Bulls pushed the stock above a two-month ascending triangle Thursday in a move that could propel price higher in the weeks ahead. Breakout traders who play the move should consider using a 15-day simple moving average (SMA) to lock in profits. To implement this strategy, remain in the position until the stock closes below the indicator.
Qorvo, Inc. (QRVO)
With a market capitalization of almost $15 billion, Qorvo, Inc. (QRVO) develops and commercializes technologies and products for wireless and wired connectivity globally. The company posted second quarter earnings of $1.50 per share to deliver a 32.74% earnings surprise. Revenues for the period of $787.45 million grew by 15% on a year-over-year basis and surpassed Wall Street forecasts by 7.8%. The top line also came in above the upper end of the company's guidance range of $710 million to $750 million. Qorvo stock has jumped 31.26% since late April, outperforming the semiconductors industry average by over 7% as of July 31, 2020.
The share price broke out above major overhead resistance at $120 in Thursday's session on heavy trading volume. The move also coincided with the moving average convergence divergence (MACD) indicator crossing above its trigger line to generate a buy signal. Those who enter here could use a trailing bar exit to exploit the short-term bullish momentum. For instance, place an initial stop-loss order beneath yesterday's low and raise it under each higher low until stopped out.