Broadcom is a Good Stock to Own in 2021, Here's Why

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

AVGO – Broadcom Inc. (AVGO) has plenty of room for growth this year, fueled by increasing demand for chips for advanced devices. In fact, greater investments across 5G infrastructure and innovations in semiconductor packaging should provide new opportunities for the stock to gain. We believe the stock is poised to extend its solid performance this year as growth stemming from a recovery in global demand and product launches hits new highs.

Based in San Jose, California, Broadcom Inc. (AVGO - Get Rating) is a developer and supplier of semiconductor infrastructure software solutions. The company operates through two segments – Semiconductor Solutions and Infrastructure Software. It also provides semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor-based devices worldwide.

AVGO’s strong fourth quarter results were driven by strong demand for networking from cloud providers and for broadband from service providers. Its  growth in wireless should increase its direct sales capacity significantly. Also, the advent of AI chip manufacturing and 5G technology, and stringent test demands from the communications, consumer electronics, automotive and healthcare sectors, are expected to generate more business demand.

We think this well-diversified chipmaker is poised to benefit as companies across industries accelerate their efforts to become more digital, save costs and grow in the current, challenging business environment.

The company’s strategic acquisitions and innovative product developments have helped it  to a 43.2% gain over the past year. This impressive performance combined with several other factors has pushed AVGO to  a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates AVGO:

Trade Grade: A

AVGO is currently trading above its 50-day and 200-day moving averages of $421.56 and $347.48, respectively, indicating that the stock is in an uptrend. In fact, the stock has gained 27.8%over the past three months, reflecting solid short-term bullishness.

AVGO’s revenue has increased 12% year-over-year to $6.47 billion in the fourth quarter ended November 1, 2020. The company’s infrastructure software revenue grew 36% from its  year-ago value to $1.64 billion. Its adjusted EBITDA rose 8.5% year-over-year to $13.64 billion, while its net income increased 56.3% from the prior-year quarter to $1.32 billion over this period.

This month AVGO introduced the BCM4389 chip, which enables the world’s first Wi-Fi 6E phone, the Samsung Galaxy S21 Ultra. This expansion creates seven additional 160 MHz channels for the BCM4389, unlocking the value of Wi-Fi 6E for remote work, education, telemedicine, and gaming. This should l establish the company as a global technology leader in the semiconductor and infrastructure software solutions.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , AVGO is  well positioned. The stock is currently trading just 1.3% below its 52-week high of $470.00, which it hit on January 25.

The company’s net revenue has grown  at a CAGR of 10.6% over the past three years, while its net income has increased at a CAGR of 20.5% over this period. AVGO’s EPS increased at a CAGR of 16.2% over the past three years. This bullishness can be attributed to the consistent  developments, broad product portfolio, continued advancement in the international market, and rapid expansions made by the company.

Peer Grade: A

AVGO is currently ranked #3  of 99 stocks in the Semiconductor & Wireless Chip industry. Other popular stocks in this industry are Texas Instruments Incorporated (TXN - Get Rating), Analog Devices, Inc. (ADI - Get Rating) and Microchip Technology Incorporated (MCHP - Get Rating)

TXN, ADI, and MCHP have gained 31.4%, 31.8%, and 35.2%,respectively, over the past year. This compares to AVGO’s 43.2% returns over this period.

Industry Rank: A

The Semiconductor & Wireless Chip industry is ranked #2  of the 123 StockNews.com industries. The companies in this industry manufacture and sell semiconductors (computer chips), and other components used in electronic devices, as well as wafer processing equipment, semiconductor assembly and packaging equipment, and other machinery used to produce semiconductors.

Digitization has leaped forward  within a short span of time amid the COVID-19 pandemic, which has forced the world’s workforce to shift from offices to homes and increased the dependency on smart devices to stay connected. The semiconductor industry has been capitalizing on our  increasingly digitized and connected world. With a significant increase in the sale of consumer electronics during this digital revolution, companies in this industry are expected to generate solid returns.

Overall POWR Rating: A (Strong Buy)

AVGO is rated “Buy” due to its impressive financials, short- and long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

A rising demand for wireless chips across multiple industries places  AVGO in a favorable position to outperform the broader market in the coming quarters despite gaining 43.2% over the past year. The company’s strong returns in the infrastructure segment in the fourth quarter and investors’ bullish outlook on the booming chip market should drive its shares higher. Meanwhile, rapidly evolving trends in the vital field of AI and 5G should position the company well to generate handsome  revenues in the coming quarters.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for AVGO. It has an average broker rating of 1.47, representing  favorable analyst sentiment. Of 28 Wall Street analysts that rated the stock, 7 rated it a “Strong Buy.” A consensus EPS estimate of $6.22 for the quarter ending April 30, 2021 represents  a 21% improvement year-over-year. The consensus revenue estimate of $6.33 billion for the next quarter represents a 11.1% increase from the same period last year.

Note that AVGO is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Want More Great Investing Ideas?

“MUST OWN” Growth Stocks for 2021

#1 Ingredient for Picking Winning Stocks

7 Best ETFs for the NEXT Bull Market

5 WINNING Stocks Chart Patterns

 


AVGO shares were trading at $448.78 per share on Wednesday afternoon, down $15.09 (-3.25%). Year-to-date, AVGO has gained 2.50%, versus a 1.10% rise in the benchmark S&P 500 index during the same period.


About the Author: Imon Ghosh


Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
AVGOGet RatingGet RatingGet Rating
TXNGet RatingGet RatingGet Rating
ADIGet RatingGet RatingGet Rating
MCHPGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Stock Market Update: It’s Complicated!

The S&P 500 (SPY) may have bounced 17% from recent lows, but the outlook for stocks from here is...in a word...COMPLICATED. Read on to get Steve Reitmeister full market outlook and trading plan for this complicated market environment.

Becoming More Bullish on Stocks, But...

Stocks are on a roll with the S&P 500 (SPY) up more than 10% from the recent lows. Before you start getting too giddy, you should read this updated market outlook and trading plan Steve Reitmeister.

Stock Market Held Hostage

Uncertainty is the term most often applied to this stock market. Uncertainty over tariffs. Uncertainty of whether the S&P 500 (SPY) will fall into bear territory. Uncertainty over what happens next. Steve Reitmeister dives into the uncertainty to make sense of the market in this week’s commentary...

Stock Market Standing on the 50 Yard Line

Steve Reitmeister contemplates where the stock market stands now and what happens next in trying to stay on the right side of the market action. One path points to bear and one to new highs for the S&P 500 (SPY). Which will it be?

Bear or Bull Market?

The S&P 500 is on the brink of bear market territory...but that outcome is not a given at this time. Steve Reitmeister shares insights gleaned from his 45 years of investing to shine a light on current conditions along with his top picks...

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