(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Broadcom Corp.'s (AVGO) stock has risen more than 15% since reaching a low of around $200 in July. The good news is that Broadcom, a major Apple Inc. (AAPL) iPhone supplier, is poised to rise even higher. A technical analysis indicates the stock may climb an extra 7%, and analysts are even more bullish, seeing a 24% gain. (See: Broadcom Sees Q4 Boost From Data Center Demand, iPhone Launch.)
Analysts are upping their earnings estimates not only for the balance of this year but also fiscal 2019 and 2020. The company delivered better than expected fiscal third-quarter results at the beginning of September, with earnings topping estimates by more than 3%.
Technical Break Out
If the stock breaks above a key technical bencmark, around $239 a share, it may continue to rise and reach the next level of technical resistance of around $252, an increase of more than 7%. (See: Broadcom's Stock May Rebound by 11%.)
The bullish chart may be a reflection of the improving business outlook. Analysts have raised their earnings outlook for the balance of 2018. Earnings are forecast to grow by more than 28% to $20.50 per share, up from a prior forecast of $19.92 at the beginning of August. But more important is that profits for fiscal 2019 will rise by more than 4.5% from previous estimates. Earnings estimates are also rising for 2020.
Shares Are Cheap
As a result of the faster earnings growth, the stock's price-to-earnings ratio has fallen to 11 times 2019 earnings. That is well below the PE ratio of 13.2 in November of 2017. The average PE ratio of the top 25 companies in the iShares PHLX Semiconductor ETF (SOXX) is also much higher, at 15.
The improving profit outlook for Broadcom may be what the stock needs to get past short-term technical hurdles, setting up a longer-term rise. With the newest Apple iPhone's waiting in the wings, investors may see more momentum build in the stock.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.