Why These Chip Stocks Are Due to a Drop: NXPI, QCOM

A stall in the uptrend in shares of NXP Semiconductor (NASDAQ:NXPI) and Qualcomm (NASDAQ:QCOM) suggests that these stocks could fall. Even though the forward valuations (forward P/E) are favorable, any near-term drop creates a better entry point for value investors looking for a discount.

Qualcomm topped $94 in early November before closing at $83.55 recently. The company reported strong Q4 results that sent the stock to new highs on the strength of 5G sales. But profit-taking is still running its course. The stock could fall to around $80 before buyers step in. As 2020 unfolds, strong 5G demand from a smartphone product refresh and a 5G network upgrade from all three major carriers in China will send the stock to new highs.

NXP Semiconductor closed at 4.4% below its 52-week high. The stock is up 58% YTD but could be due for a pullback as investors wait for the stock buyback to resume in 2020. The company announced a $0.375 a share quarterly dividend and said it will resume its stock buyback in 2020. When it buys back $2 billion worth, it will reduce share float and improve the EPS.

NXPI stock failed to break above $120, so as it corrects to as low as $110 - $112, investors have another chance to add to their position. The growth in autonomous driving continues and will lift NXP’s revenue for the next few years.