Broadcom (AVGO) has remained a somewhat frustrating stock to own – I say “somewhat”, because while the shares aren’t far from their all-time high (about 5%) and have risen around 60% over the past year, they’ve still continued to lag the broader semiconductor space a little bit. I suspect this is due in part to the fact that management runs the business for long-term margins and growth (as opposed to shorter-term metrics), as well as the slower-growing software assets.
In any case, I continue to believe that Broadcom offers a good mix of quality and value. Broadcom has exceptionally strong businesses in multiple growing markets (including switching/routing, broadband access, custom ASICs, and front-end phone components), and I like the combination of mid-single-digit long-term revenue growth potential and exceptional (high 50%s) non-GAAP operating margins. With those drivers, I believe Broadcom shares should trade closer to the mid-$500s.
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