Qualcomm Is a Top Stock Pick on Valuation, Says J.P. Morgan

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J.P. Morgan believes semiconductor company Qualcomm is getting too cheap to ignore.

On Thursday, analyst Samik Chatterjee reiterated his Overweight rating on the maker of mobile processors and 5G wireless chips. He also put Qualcomm (ticker:

QCOM

) on the firm’s Analyst Focus List.

Chatterjee expects Qualcomm to “benefit substantially from 5G modem sales” to smartphone makers, adding it was making good progress in diversifying its business into non-phone markets.

The analyst noted the company’s shares are now trading at about 10 times next-12-months earnings-per-share estimates, which offers large potential upside for investors if Qualcomm continues to gain share against its competitors.

Beyond company-specific fundamentals, Chatterjee thinks the stock market may be getting too negative about companies exposed to consumer-electronics markets.

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“We increasingly expect smartphones and TVs to cycle past trough sentiment with a rebound likely in the out-year driven by replacement cycles,” he wrote.

Qualcomm stock is up 0.3% to $136.01 in Thursday trading amid a falling stock market. Its shares have dropped more than 25% this year on concerns about slowing demand for its chips. Chatterjee, however, reduced his price target on Qualcomm to $185 from $205, citing the near-term macro environment.

J.P. Morgan isn’t alone in its optimism for Qualcomm’s business. Last month, the chip stock rallied after Taiwan-based hardware analyst Ming-Chi Kuo predicted 

Apple
’s
(

AAPL

) move to develop its own modem chips was hitting roadblocks and Qualcomm would remain the exclusive supplier of 5G chips for iPhones next year.

Write to Tae Kim at [email protected]