1 Stock I'm Watching, but Won't Buy Yet

By Motley Fool Staff Markets Fool.com

Good investors keep a watch list of stocks they are interested in buying -- if the price is right. Below, three Motley Fool contributors weigh in on why they are watching, but not buying, Qualcomm , Tesla Motors , and Amazon stock right now.

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Bob Ciura (Qualcomm): One stock I'm watching but won't buy just yet is chipset maker Qualcomm. Qualcomm is an unloved stock in the tech sector, but that could all change next year. That's because Qualcomm is still on track for strong earnings growth thanks to the continued boom in smartphone shipments across the globe, but it isn't priced like it. In fiscal 2014, Qualcomm set company records for revenue, adjusted earnings per share, device sales, and MSM shipments. Next year, Qualcomm expects 9% revenue growth and 14% growth in operating profit at the high end of its forecast. Qualcomm's low valuation -- 12 times forward EPS -- seems unfitting of a company putting up double-digit earnings growth. And, Qualcomm's 2.3% dividend yield is a nice kicker to its total return potential.

The only reason I haven't jumped on Qualcomm just yet is because I think the stock can get a little cheaper still. The company is grappling with a difficult situation in China, where management suspects certain licensees are underreporting sales of licensed 3G and 4G devices. In addition, Qualcomm revealed that it's under investigation by the China National Development and Reform Commission. And, Qualcomm is under investigation by the Federal Trade Commission in the United States for practices pertaining to its patent licensing business.

Because of all of these near-term headwinds, Qualcomm doesn't have much room for error. I think the stock could sell off if first-quarter 2015 results disappoint even slightly, like what happened last quarter. If Qualcomm trades below $70 per share again, I'll pounce. It closed Friday at $73.37.

Brian Nichols (Amazon.com): Despite Amazon.com's near-20% stock loss this year, there are four reasons it's best to watch rather than buy the stock.

First, in 2015, revenue growth is expected to fall below 20% annually for the first time ever, as it surpasses $100 billion annually. With revenue growth slowing, can Amazon.com maintain a revenue growth rate to support a rather lofty price/sales ratio of nearly 1.8? Wal-Mart trades under 0.6 times trailing-12-month sales.

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Second, can Amazon.com satisfy Wall Street analysts' desire for higher profits? Already, CEO Jeff Bezos has launched, or is planning to launch, several new high-margin services like advertising, payments, and travel. However, will these initiatives increase Amazon.com's free cash in a significant way? Keep in mind, Amazon.com trades at a whopping 140 times trailing-12-month free cash flow; Wal-Mart trades at a 20 times multiple to its cash flow.

Third, there are questions as to whether Amazon.com can maximize same-day shipping with online grocery and disrupt the industry like it did with retail. Research firm BMC estimates that online grocery sales will rise from $27 billion last year to $123 billion by 2023.

Finally, Synergy Research estimates that Amazon.com's market share of cloud infrastructure services has quickly fallen from nearly 32% to just 27% over the last year. Meanwhile, Microsoft and Google have gained share. Can Amazon.com keep its leading market share in cloud services, weather the industry's ongoing price war, and ever live up to the $50 billion valuation Evercore has placed on its cloud business?

There are a lot of questions that can't be answered right now. With a $150 billion market capitalization, Amazon.com remains too expensive given these unknowns. That said, I'll continue to watch the stock, as future stock losses could make the risk worth the reward.

Tamara Walsh (Tesla Motors): I currently own shares of Tesla. However, I'm keeping a close watch on the stock now, because I would like to add to my position. Here's the problem. The electric-car maker's stock is up 744% since I first bought shares of Tesla in 2011. The company's stock is expensive today, with shares trading around $229 each. Moreover, Tesla's price-to-sales ratio of 10.16 is one of the highest in the industry. This means Tesla Motors investors are paying roughly $10.16 for every $1 of sales the company generates. For this reason, I'm not yet ready to buy more Tesla stock.

However, with the long-awaited arrival of its Model X and the build out of its Gigafactory now on the horizon, Tesla faces tremendous execution risks. Therefore, given Wall Street's lofty expectations for the stock, even the subtlest misstep could send shares lower. Ultimately, this would create an entry point for patient investors.

Despite the auto upstart's rich valuation, longer term, I believe Tesla's stock has a lot more room to run. Tesla plans to have its lithium-ion factory fully operational by 2020. This would put Tesla Motors' EVs one step closer to global mass adoption -- an achievement that could send shares of Tesla into the stratosphere.

The article 1 Stock I'm Watching, but Won't Buy Yet originally appeared on Fool.com.

Bob Ciura has no position in any stocks mentioned. Brian Nichols owns shares of Qualcomm. Tamara Rutter owns shares of Amazon.com and Tesla Motors. The Motley Fool recommends Amazon.com and Tesla Motors. The Motley Fool owns shares of Amazon.com, Qualcomm, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.