Buy the Dip on Broadcom?

NASDAQ: AVGO | Broadcom Inc. News, Ratings, and Charts

AVGO – Broadcom (AVGO) is at the intersection of several bullish trends – strong semiconductor demand, 5G, booming iPhone sales, and infrastructure spending. It’s become even more attractively priced in recent days due to the tech selloff despite a strong earnings report. Read on to find out why AVGO is my Stock of the Week.

Since the middle of February, there’s been significant weakness in the technology sector with the Nasdaq down over 10%. The biggest losers have been the frothy parts of the market such as the EV stocks and SPACs whose losses are in the 30 to 50% range.

This isn’t a big surprise given massive speculative gains in many of these stocks in 2020. Many of which reaching bubble proportions. So as the whole industry takes a beating, there are some innocent victims that are getting pushed down to extraordinarily good prices. Such is the case with a fundamentally sound tech stock such as Broadcom (AVGO).

AVGO offers a tantalizing combination of value and growth. It also features an excellent management team that has a consistent track record of introducing successful products, expanding margins, and beating earnings (for 20 straight quarters!). The company also has exposure to some of the fastest-growing parts of the economy such as 5G equipment, infrastructure spending, and consumer spending.

For these reasons, AVGO is my pick for Stock of the Week. Now, let’s dig a little deeper.

Growth

In Broadcom’s recent earnings report, the company delivered 14% revenue growth, 26% earnings growth, and issued 2021 guidance above analysts’ expectations. It forecasts 13% revenue growth in its next quarter. Wall Street analysts have also been revising AVGO’s earnings estimates for 2021 and 2022 by 16% and 12%, respectively.

AVGO’s two primary sources of revenue are semiconductors (74%) and infrastructure software (26%). This infrastructure software is used for mainframes, datacenter, and cybersecurity. Notably, this part of the business is growing at a faster rate and comes with higher margins.

Broadcom’s semiconductors are found in all types of equipment including smartphones, PCs, and network equipment. The company is benefitting from a variety of factors such as increased spending on network equipment as mobile operators upgrade their networks to support 5G. Tech sales have been quite strong and will remain strong especially with stimulus checks arriving in the mail later this month. In fact, this is leading to a supply crunch which should lead to more pricing power for AVGO in 2021.

Value

Usually, there’s a tradeoff between growth and value. Not with AVGO. It has a forward PE of 15 which is cheaper than the S&P 500’s forward PE of 22 and the semiconductor industry’s forward PE of 31.

This type of valuation is attractive, because it means the stock has more upside due to the potential for multiple expansion along with earnings growth. Additionally, it provides a greater cushion in the event of downside. This was recently borne out as AVGO remains slightly positive on a YTD basis, while the Nasdaq is negative.

Wall Street analysts are also bullish on AVGO as it has a price target of $516 which implies 21% upside. Further, many top Wall Street analysts are even more bullish. 5 star analyst, Cody Acree of Loop Capital, today reiterated a Buy rating with a $540 target. On Friday, 5 star analyst, Rick Schaffer of Oppenheimer, reiterated a $570 target. Given the strong fundamentals and catalysts, I believe AVGO will realize this price target later this year.

POWR Ratings

AVGO has an overall rating of B which equates to a Buy rating. This is consistent with its attractive growth and value profile. The POWR Ratings assesses stocks by 118 different factors, each with its own weighting. B-rated stocks have generated a compound annual return of 19.7%. This is more than 175% of the S&P 500’s compounded annual return of 7.1%.

The POWR Ratings also evaluates stocks by different categories. In terms of Stability, AVGO is rated a B. This fits with the company’s consistent track record of topping analysts’ expectations, compounding earnings growth, and entering new markets. The company is a leader in an expanding market.

In terms of Industry Rank, the Semiconductors & Wireless Chip Industry is rated a B. It’s ranked #8 out of 99 industries. Mobile operators are upgrading their wireless networks as 5G technology becomes the standard. This is driving record sales and earnings for the industry and is the primary reason behind its standing.

Conclusion

The recent selloff in technology stocks is a healthy development for the market. We are seeing the frothiest parts of the market punished which is setting us up for the next advance. AVGO is collateral damage in this process and will be one of the first to bounce back once conditions normalize. And just for good measure you get a 3.2% dividend yield. Truly icing on the cake!

Discover More Stocks Like AVGO

AVGO is just one of 11 stocks and 3 ETFs in my Reitmeister Total Return portfolio. That is where I put 40 years of investing experience to work for investors including:

  • Market Outlook
  • Timely Trading Strategy
  • Portfolio of Hand-Selected Stocks and ETFs

Note that year to date this portfolio generated a +15.89% return, well ahead of the +2.29% result for the S&P 500.

If you would like to see the current portfolio of 11 stocks and 3 ETFs, and be alerted to our next timely trades, then consider starting a 30 day trial by clicking the link below.

About Reitmeister Total Return newsletter & 30 Day Trial


AVGO shares were trading at $421.25 per share on Monday afternoon, down $28.89 (-6.42%). Year-to-date, AVGO has declined -3.79%, versus a 2.10% rise in the benchmark S&P 500 index during the same period.


About the Author: Steve Reitmeister


Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
AVGOGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


:  |  News, Ratings, and Charts

Bull Run or Bull S#*t?

The S&P 500 (SPY) has impressively broken out above 4,000. However, it seems that ONLY large caps are moving higher while smaller stocks are actually in the red. Why is this? And what does it mean for the future health of this bull market? Read on below for the answers…

:  |  News, Ratings, and Charts

3 5G Stocks to Buy in Q2 2021

5G technology implementation is expected to grow significantly in 2021, driven by President Biden’s proposed, aggressive spending on 5G infrastructure. Thus, we expect Skyworks Solutions (SWKS), Qorvo (QRVO), and Cirrus Logic (CRUS) to deliver solid returns in the coming months. Read on for details.

:  |  News, Ratings, and Charts

Top 10 Growth Stocks

Let me prove beyond a shadow of a doubt that we are in the midst of a stock market bubble. Even better, let me explain why stocks (SPY) will rise for another 12-24 months so you can ride it higher and then parachute out at the peak. And just for good measure I will share my top 10 stocks for today’s market. Read on below for more...

:  |  News, Ratings, and Charts

3 Stocks to Watch as the Prices of Used Cars Skyrocket

With the focus on earnings reports, many investors may be missing out on the burgeoning bubble in used car stocks. Due to low new car inventories, used cars are flying off the lot. That is great news for stocks such as Advance Auto Parts (AAP), LKQ Corporation (LKQ), and AutoZone (AZO).

:  |  News, Ratings, and Charts

Top 10 Growth Stocks

Let me prove beyond a shadow of a doubt that we are in the midst of a stock market bubble. Even better, let me explain why stocks (SPY) will rise for another 12-24 months so you can ride it higher and then parachute out at the peak. And just for good measure I will share my top 10 stocks for today’s market. Read on below for more...

Read More Stories

More Broadcom Inc. (AVGO) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All AVGO News