AVGO: Broadcom vs. Qualcomm: Which 5G Stock is a Better Buy?

5G stocks are attracting more investing dollars with each passing day. If your portfolio does not yet have a 5G stock, it is time to considering adding one. Even if you own one or several 5G stocks, it is in your interest to keep an eye on the industry to see which stocks have the best growth outlook.

5G will prove even more important as time progresses. These uber-fast wireless connections will shape how business is conducted and improve the human experience. Though it has taken a while for 5G to be implemented, this technology is becoming ubiquitous.

Broadcom (AVGO - Get Rating) and Qualcomm (QCOM - Get Rating) are two of the more intriguing 5G stocks. Let’s delve into each’s nuances to determine which is more worthy of a place in your portfolio.

A Look at AVGO

AVGO makes semiconductor chips used to power 5G devices. Examples of AVGO semiconductor products include integrated circuits for specific applications, microwave components, and optoelectronics radio frequency components.

AVGO is different from QCOM in that it does not sell cellular modems of the standalone variety or mobile applications processors. AVGO’s chips have considerable value as they are essential to enabling smartphones’ wireless capabilities, meaning the company will benefit from 5G technology. It is important to note that the 5G transition is steering AVGO’s top customers, such as Apple (AAPL), to buy its most advanced cellular chips. Such chips are comparably expensive, meaning AVGO will be raking in cash for years to come.

AVGO has an overall grade of A in our POWR Ratings system. The stock has B grades in the Stability, Growth, Sentiment, and Quality components. Click here to find out how AVGO fares in the Value and Momentum components.

Of the 99 stocks in the Semiconductor & Wireless Chip industry, AVGO is ranked second. You can find other top stocks in that industry by clicking here.

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Of the 31 analysts who have issued recommendations on the stock, seven consider it a Strong Buy, nineteen consider it a Buy, and five consider it a Hold.

A Look at QCOM

QCOM generates revenue through selling chips such as application processors to companies that make smartphones. QCOM also relies on wireless patents to drive revenue. These patents are licensed to businesses that sell cellular-capable devices. QCOM is all in on 5G, leading the transition hoping that this breakthrough technology will catalyze revenue. QCOM’s 5G modem, dubbed “Snapdragon X50”, can handle download speeds of multi-gigabits.

QCOM has an overall grade of B, which translates into a Buy in our POWR Ratings service. QCOM has an A grade in the Growth component and B grades in the Value and Momentum components. If you are curious as to how QCOM grades in the Stability, Sentiment, and Quality components, click here to find out.

Of the 99 publicly traded companies in the Semiconductor & Wireless Chip industry, QCOM is ranked 12th.

Analysts are bullish on QCOM, establishing an average target price of $172.27. A spike to this level would equate to an increase of more than 25%. The highest analyst target price for QCOM is a whopping $200. Of the 31 analysts who have issued recommendations on QCOM, nine consider it a Strong Buy, 14 consider it a Buy, and eight consider it a Hold.

Which is the Better Buy?

AVGO is particularly appealing as it has an attractively low forward P/E ratio of 16.95 and a dividend of 3.16%. QCOM’s dividend is a comparably low 2%. QCOM’s forward P/E ratio of 17.71 is also a bit higher than AVGO’s.

Choosing between these 5G stocks is clearly challenging. However, the POWR Ratings provide some clarity. AVGO has a superior POWR Rating, ultimately making it the better of the two stocks.

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AVGO shares rose $7.34 (+1.58%) in premarket trading Thursday. Year-to-date, AVGO has gained 8.41%, versus a 6.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...