Trade of the Day: Another Beat, Another Chance to Buy BRCM Stock

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Broadcom Corporation (NASDAQ:BRCM) — I last featured BRCM stock as the Trade of the Day on Oct. 23, at just below $40, following the company’s better-than-expected Q3 earnings report. I set a trading target at $44 and a long-term objective of $48.

On Tuesday after the close, Broadcom reported Q1 adjusted earnings of $0.64 per share, beating the $0.60 consensus of 29 analysts polled by Thomson Reuters. The next day, BRCM stock gapped up through its 50-day moving average at $44.44.

Broadcom is the leading maker of chips used in networking boxes and sells semiconductors for broadband communications, cable modems, and office and home networking. Its latest results were driven by strong demand from the smartphone and broadband markets.

S&P Capital IQ has a “buy” rating on BRCM stock with a $48 price target. Its analysts see more growth and higher profitability ahead with the potential for more cash to be returned to shareholders. They estimate 2015 operating earnings of $3.17 per share, up from $1.08 in 2014, and they predict earnings of $3.34 in 2016.

Technically BRCM stock is trading in a well-defined bull channel that began in May. Since then, the company has regularly beaten consensus earnings estimates, and shares have gapped up on most of those announcements.

In the middle of the advancing bull channel is the 50-day moving average, which is now at $44.44. Buying under this moving average has proven to be a successful strategy, especially when a round of profit-taking closes a recent gap.

Buy BRCM stock under $44.44 for a trading objective of $50, which would result in a gain of 12.5%. Investors may want to hold shares of this high-quality semiconductor stock for higher returns and its 1.3% dividend yield.

BRCM Stock Chart
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