VIDEO: Will Broadcom Keep Climbing?

by Tom Taulli | April 24, 2013 2:21 pm

The mobile revolution is hot, but not all companies taking part in it are heating up as a result. Just look at Broadcom Corp. (NASDAQ:BRCM[1]). The company has focused heavily on mobile but has hardly seen its stock climb as a result.

The average return for BRCM over the past five years has been a miserable 4.5%. More recently, the stock has been stuck in a range of about $30 to $35.

Today, though, BRCM showed that it can get juiced up, with the stock gaining about 7%.

Does this mean the company may be on the verge of breaking out of its rut?

Perhaps. No doubt, BRCM posted a solid first quarter, with revenues up over 10% to $2 billion and earnings coming to $191 million, or 33 cents per share, up from $88 million, or 15 cents a share from the same period a year ago. When making one-time adjustments, the earnings came to 65 cents — 9 cents better than the Street expected.

The momentum should continue, too. BRCM’s forecast for the second quarter is for revenues of $2.1 billion, plus or minus 4%. The analysts’ consensus was for $2.05 billion.

Now it’s true that lots of BRCM’s growth[2] has come from sales of chips to Apple’s (NASDAQ:AAPL[3]). And, as seen with the tech giants earnings report, growth has certainly been slowing down[4].

But this should not necessarily be an issue BRCM. After all, the company has been getting more business from other players in the mobile space like Samsung (PINK:SSNLF[5]).

More importantly, the overall industry should continue to grow for the long-haul. At the core of BRCM is expertise in regards to technology and powerful Internet connections. With the move towards LTE — which will mean much more video — there should be a nice boost.

Plus, there are the huge opportunities in emerging markets, especially in Asia. Smartphones, tablets and phablets are becoming must-have items.

Something else: BRCM is a leader in near-field communication (NFC) technology. Essentially, this allows for mobile transactions. While the market is still in the nascent stages, the potential is enormous. It seems inevitable that smartphones will morph into virtual wallets.

To top it off,  BRCM has tremendous scale. Just last year, the company shipped over 700 million mobile combo chips and another 700 million for Ethernet connections. All in all, this is a testament to the company’s core technology.

Then again, the company plows about $2 billion a year into R&D.  It definitely helps that BRCM has $3.93 billion in the bank and keeps cranking out lots of cash flow (there was $388 million in Q1).

Going forward, BRCM is likely to remain a top player in the mobile space — and this will drive growth on both the top line and bottom line. And the stock price is still trading at a reasonable valuation, coming to a forward price-to-earnings ratio of about 11x.

In other words, for investors that want to find a long-term play on mobile, BRCM looks like a good choice.

For more videos — including exclusive access to full-length interviews and early access to weekly updates — like us on Facebook[6] or follow us on Twitter[7].

Tom Taulli runs the InvestorPlace blog IPO Playbook[8]. He is also the author of High-Profit IPO Strategies[9]All About Commodities[10], and All About Short Selling[11]. Follow him on Twitter at @ttaulli[12]. As of this writing, he did not hold a position in any of the aforementioned securities.

  1. BRCM:
  2. lots of BRCM’s growth:
  3. AAPL:
  4. growth has certainly been slowing down:
  5. SSNLF:
  6. like us on Facebook:
  7. follow us on Twitter:
  8. IPO Playbook:
  9. High-Profit IPO Strategies:
  10. All About Commodities:
  11. All About Short Selling:
  12. @ttaulli:

Source URL:
Short URL: