Lynch Picks: Buy Broadcom (AVGO)
Broadcom Inc. $AVGO designs, develop, and supply a broad range of semiconductor and infrastructure software solutions. The company’s three primary end markets include Broadband, Networking, and Wireless.
The company generates a significant portion of its revenues from selling RF filters that enable wireless communication by ensuring the various transmissions and receptions of voice and data streams do not interfere with one another. About 25% of Broadcom’s sales come from high-end smartphones (predominantly Apple). In addition, the company has a history of making strategic acquisitions of semiconductor companies at attractive valuations to spur growth and drive cost synergies.
Broadcom Inc. is currently trading at a PEG Ratio of 0.83, which is why we have picked the stock today in our Lynch Picks. Within its diverse product line-up, Broadcom's economic moat can be attributed to the company’s expertise in designing a chip for networking switching chips and RF film bulk acoustic resonator filters.
In addition, the company is a market leader in Wi-Fi chips, set-top box processors, enterprise storage chips, and fibre channel switch products. These relatively less moat-worthy segments generate solid cash flow that Broadcom can invest in R&D and mergers and acquisitions to maintain its competitive advantage in its core end markets.
There is some cyclicality in the company’s results, and Broadcom has historically reported higher sales in the second half of the fiscal year due to seasonality in our wireless communications products. As a result, Broadcom stock is down 17% YTD, in line with a broader sell-off in the S&P 500 companies.
Source: Yahoo Finance