Like the rest of the tech sector, semiconductor companies got walloped over October, but it’s not all bad news, says portfolio manager Brian Acker, who says his company sees tonnes of upside to Broadcom (Broadcom Stock Quote, Chart: NASDAQ:AVGO).
After a good half-decade of superlative growth, Broadcom has had a dismal showing in 2018, currently down 24 per cent from its all-time high of $285.68 set last November. (All figures in US dollars.)
The stock had a nice jump in September where it gained over 12 per cent, spurred on by a third-quarter earnings report that featured a 13.5 per cent uptick in revenue and an EPS of $4.98 per share, a 21.5 per cent increase.
But then October happened and like many names in the space — including all of the FAANG group of tech stocks — Broadcom fared poorly, dropping 9.8 per cent over the month.
Trade wars instigated by the US Trump administration and a slumping economy in China are big concerns for tech in general but doubly so in the semiconductor space, where the vast majority of revenue comes from markets outside of the United States. The iShares PHLX Semiconductor ETF, the largest ETF tracking companies in the space, is now down 3.5 per cent year-to-date.
But not every name in semiconductors is to be avoided, says Acker, CEO and chief investment strategist at Acker Finley.
“The semiconductors, obviously they’re cyclical,” Acker says to BNN Bloomberg. “The same thing applies to Broadcom. It closed at $229.88. We have a model price of $357.75, that’s a 56 per cent upside. Would I buy here? Yes, I would.”
“We own just a little bit,” he says. “It has actually had a nice pullback here. It’s a campaign stock. Certainly, if it got hit and came lower, I would add to that position, but obviously there’s tremendous upside and I would recommend it.”
On Monday, Broadcom announced the completion of its previously announced acquisition of mainframe computer software company CA Technologies for $18.9 billion. Not known to be shy on dealmaking, CEO Hock Tan said the acquisition gives more depth to Broadcom’s offerings to customers.
“Broadcom has a track record of successfully integrating and growing the businesses we acquire,” Tan stated in a press release. We believe this transaction will enable us to offer customers a leading portfolio of best-in-class solutions across a diverse set of technologies. We intend to invest in and grow the CA business to further enhance its capabilities in mission-critical infrastructure software solutions.”