Broadcom Inc. (AVGO), the combined entity of Broadcom and Avago, boasts a highly diverse product portfolio across an array of end markets. Avago focused primarily on radio frequency filters and amplifiers, while the Broadcom unit designs, develops, and supplies semiconductor and infrastructure software solutions.
The company has been gaining on continued strength in both its Semiconductor solutions and Infrastructure software segment. In particular, AVGO is seeing robust adoption of Wi-Fi 6 in access gateway and cable DOCSIS 3.1 products. The acceleration in 5G deployment and a production ramp up in radio frequency (RF) should drive growth going forward.
AVGO had $9.5 billion in cash as of the most recent reported quarter, compared with only $278 million. The company also has a gross margin of 59%, which is above the industry average. From a growth standpoint, sales have grown an average of 23.5% over the past five years. Plus, analysts forecast a 26.9% year over year rise in earnings in the current quarter.
The stock appears undervalued based on its forward P/E of 16.26. The stock had been trending higher since last summer, but has shown mixed performance since March as shown in the chart below.
Take a look at the 1-year chart of AVGO below with added notations:
AVGO was impressively climbing into its February high. However, since then the stock has struggled to get past the $490 resistance (red) area. That zone is also preventing the stock from hitting new 52-week highs.
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AVGO dropped back again, but traders should watch for a possible return to the high. The ideal long position on the stock would be on a breakout above that level, with a protective stop placed below the entry point.
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AVGO shares rose $1.60 (+0.33%) in premarket trading Monday. Year-to-date, AVGO has gained 12.97%, versus a 18.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Christian Tharp
I am an expert stock market coach having helped over 4000 beginner and advanced traders & investors from around the world take control of their financial futures. I also write stock market related articles for the Adam Mesh Trading Group and Yolo Publishing. More...
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