Samsung and Apple trading strategy
Earlier in the year investors punished Samsung for missing guidance, and generating year-over-year deceleration in earnings growth.
Source: Statista
The fact is 46% year-over-year growth probably isn’t that sustainable as Samsung has been able to launch products in the low, mid, and high-end. There’s no pent-up growth opportunity as the company is expected to follow trends in the sector. If that is the case, then it is practical to assume that Samsung’s earnings growth should eventually be in the mid-teens.
Gartner currently estimates that the smartphone market will grow to 1.7 billion shipments in 2017. If that’s the case, then investors will have to lower expectations going forward. Mid-teen growth certainly isn’t bad, especially when considering the 2013 estimated price-to-earnings ratio (forward) is going to be 6.38. Assuming 20% compounded smart phone growth (Gartner estimates) – perhaps Samsung could be trading at a bit of a discount relative to the four-year growth assumption.
Sure there is a lot of room for error, and many criticize long-run forecasts. But the way I see it, planning your five-year exit into the future based on a four-year forecast sounds pretty appropriate for long-term growth investors. This is why I don’t see the potential in either Apple or Samsung to be “trading vehicles.” You can’t trade these stocks because they’re going to tank on missed quarters, and will rally on surprise quarters. The aggregate (macro) picture looks good, what’s subject to error is execution on the part of the management (this will cause stocks in the space to remain volatile, as a result).
Chances are if the long-term trend in demand upholds and innovation continues, then it’s better to accumulate Apple and Samsung stock than it is to trade in and out of them.
Conclusion
Qualcomm seems to be executing, and its outlook is what keeps me optimistic on the industry. The macro picture remains strong, which is heavily indicative for upstream suppliers like QUALCOMM, Inc. (NASDAQ:QCOM). Further downstream, the OEMs (other equipment manufacturers) are less predictable. Because of this, Qualcomm is less of a risk when compared to Apple and Samsung.
But on the upside Apple and Samsung are cheap so long as the management teams are effectively able to execute on long-term growth strategies that can reflect the potential in smartphone and tablet devices.
The article Qualcomm Saves the Technology Rally originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Qualcomm. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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