We now see a sluggish tech stock as a buy and a standout oil name as a wait-and-see

Published Tue, Aug 23 202212:51 PM EDTUpdated Tue, Aug 23 20221:05 PM EDT

We're updating the way we think about the price levels of two stocks in the Club portfolio — upgrading Qualcomm (QCOM) to a 1 rating after a recent pullback and downgrading Devon Energy (DVN) to a 2 rating after a recent rally. Qualcomm upgrade We are upgrading our rating on QCOM to a 1 rating from a 2. Shares have fallen more than 7% since the company reported earnings in July . The stock is up slightly Tuesday. Qualcomm may have beat expectations on both the top and bottom lines, but the market put most of its focus on management's forecast, which was below Street expectations due to weakness in the global handset market. We do not know how long this hangover in the handset market will last or if this first "cut" will be the last, but we think the stock's valuation is attractive. The stock is trading at roughly 11x next 12-month earnings estimate with a 2.12% dividend yield. We think this reflects too much negativity about where the company is headed, which is a diversified semiconductor company with a larger presence in automotive and the internet of things. To this point, Qualcomm is hosting an Automotive Investor Day on Sept. 22 — and we believe this will be a positive event as management showcases why the company is a leading automotive technology platform provider for next-generation vehicles. As of the last reported quarter, Qualcomm's automotive backlog — deals they've won that should materialize into revenue in the future — sat at more than $19 billion, up $3 billion from the prior quarter. Devon Energy downgrade We are downgrading our rating on DVN to a 2 rating from a 1. Shares of this independent oil and gas producer have gained nearly 20% since we moved our rating to a 1 on Aug. 2 . Although we're taking our rating down, we are not trimming our position Tuesday afternoon. The reason why is because we just booked profits in Coterra Energy (CTRA) on Monday, and we want to space out our energy trades. As a reminder, we have been gradually paring back our overweight energy position into strength and on stretches of outperformance to protect against a swift decline in commodity prices like what happened in June. Despite these sales, we still see reasons to keep a small overweight in the sector due to cheap valuations and shareholder-friendly capital return policies. Also, the pattern this year