Broadcom - Still Undervalued, Still Seeing Growth Opps, And Still Somewhat Controversial

 

Broadcom (AVGO) has continued to lag the SOX through mid-September of this year, though the shares have at least generated close to a 10% total return since my last update, as the company continues to generate exceptional margins in a capacity-constrained semiconductor market. Although Broadcom hasn’t been generating the most impressive growth in the space, it’s well worth remembering that Broadcom’s management runs the business with far more of a focus on long-term margins and full-cycle stability than most chip companies.

Broadcom shares continue to look meaningfully undervalued to me in an industry where there aren’t a lot of obvious bargains, particularly among the higher-quality names. I do believe there is some concern that Broadcom’s more aggressive business practices will come back to haunt the company later, as well as concerns that management will prioritize lower-growth, higher-margin targets in M&A. Those are valid worries to a point, but I believe Broadcom offers a solid double-digit return in the short term and a longer-term annualized potential return in the high single digits.

 

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Broadcom - Still Undervalued, Still Seeing Growth Opps, And Still Somewhat Controversial