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Why Qualcomm Is a Bargain Below $60

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- Chip giant Qualcomm (QCOM - Get Report) continues to affirm exactly why I think it has one of the best businesses not only among the semiconductors, but in the entire market. Even better, it operates in fast-growing industry.

This is why I continue to be amazed at how the company rarely (if ever) gets mentioned when listing some of the best brands and operations on the stock market. Not only is Qualcomm an industry leader, but when you consider that its brand now controls the internal component space of approximately 250 million smartphones and other devices, it becomes clear just how underappreciated the stock has become.

Appraising the company's earnings Wednesday, the market continued to focus on anything except what is really important -- Qualcomm's true value.

The Quarter That Was

Strong smartphone demand boosted sales and the company beat street revenue and adjusted profit expectations. Still, it was not enough to avoid a selloff of more than 3%. Investors appear disappointed at what was perceived to be less-than-stellar guidance -- despite having reported profits that more than doubled for the fiscal second-quarter.

The company is clearly performing where it matters the most -- in the bottom line. For the quarter ending March 25, it reported net income of $2.23 billion or $1.28 per share on revenue of $4.94 billion -- representing an increase of 123% above the $999 million net income from the year-ago period.

Aside from guidance, investors were disappointed that operating expenses for the quarter outpaced sales gains and increased to $3.43 billion or 41%. The company spent more on production to meet demand for new types of advanced chips. I think when you are in a highly competitive environment that includes consistent performances from names such as Intel (INTC) and Texas Instruments (TXN) not to mention the growing popularity of ARM Holdings (ARMH) you can see that it gets pretty expensive to stay on top. But given that both profits and net income doubled for the quarter, I have to think its uptick in expenses was somewhat justified and the market reaction was overblown.

Bottom Line

From an execution standpoint, it was clear from the conference call that management has a firm handle of what it needs to do to mitigate the supply chain issue. I fully expect for it to the resolved by at least the end of the third quarter.

But also when you put this in the proper context, one has to realize that "the problem" is that the company currently has too much demand for its products and is unable to fill it. Consider if that were the other way around.

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From an investment perspective, I see a tremendous buying opportunity at currently levels and particularly on any pullback to the lower $60 range. In the near term, the challenges with the supply chain may present some lack of upside, but value investors that jump in on weakness will have a $72 stock by the end of the year.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

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