Stock Pick of the Week with Momentum Securities: 10 March 2021 - Broadcom Inc.
Momentum’s leading stockbroking division – Momentum Securities – will be bringing you their Stock Pick of the Week, each week on a Wednesday or Thursday. The stock pick motivation is available as written content and downloadable audio and video clips.
This week’s pick: Broadcom Inc.
About: Broadcom Inc. is an American, Semiconductor manufacturing company offering an array of Semiconductor and substructure software products. According to Citywire, the dawn of Covid-19 regulations has led to an immense demand in microchip manufacturing, after the hard lockdowns, which halted electronic manufacturing and spiked consumer demand - a technological subset, investors could benefit from.
Portfolio Manager for Momentum Securities, Chris Napier shares his insight on Broadcom Inc.:
This weeks’ stock pick originated from recent market weakness’ and volatilities we have seen in the United States (US).
Most “Growth Stocks” have bore the brunt of rising US treasury yields, and in some instances have pulled back over 15% in the last 10 trading sessions. This could give us an opportunity to get exposure to a stock that has barely taken a breather since the lows of 2020 and that stock is - Broadcom Inc.
Recent supply deficits in the Semiconductor industry have raised concerns, from vehicle manufactures to smartphone makers and networking gear - it seems the supply issues may last a little longer.
The current order lead time is sitting around 14 weeks; at its highest since mid-2018. Most CEO’s in the industry have raised concerns that any attempts to bring more production facilities online would probably take 12-18 months, at best.
Broadcom released results last week and revenue for Semiconductor solutions rose with 17%, year-over-year (YOY), which was slightly below analysts’ estimates. But we did see a beat in earnings per share (EPS) and a forecast for another 17% jump in revenue, in quarter 2.
Currently, orders making up around 90% of Broadcom’s supply for 2021 have been filled and that’s under Broadcom’s “Non-Cancellation” policy, which means even if the market sees a slew of supply in the near future, Broadcom’s orders are protected for 2021. Usually their orders, for any financial year, are around 25% of annual production.
2020 and the advent of “Work-From-Home” did not assist corporates and their need for cybersecurity: it actually put them more at risk, and this should benefit Broadcom’s software and Cybersecurity divisions, in the not too distant future as well.
Currently on a dividend yield of 3.5% and trading just over 9% off its highs - it’s not a bad time to start building a long-term position, maybe doing so in 2 or 3 tranches.
Click here to download:
• the audio clip
• the video clip
