Broadcom: Super digital, media, wireless semiconductor play

Posted Dec 11th 2009 2:00PM by Joseph Lazzaro
Filed under: Broadcom Corp'A' (BRCM), Stocks to Buy

There's little to suggest that the secular trend of broadband and mobile connectivity in the globalization era is fading, hence that's a very good reason to reiterate my buy rating for semiconductor provider Broadcom Corp. (BRCM), first recommended on June 8, 2009 at a price of $25.82.

Institutional investors have shrugged off BRCM's 2009 revenue decline and are looking to 2010, during which recent design improvements in digital t.v., Bluetooth, Wireless LAN, and other mobile handsets products should drive market share gains as consumer demand recovers, particularly in the Asia-Pacific region. Look for 2010 revenue to rise an impressive 20-25%.

Meanwhile, costs remain elevated, but top-line growth will more than compensate for it. Broadcom's strategy to concentrate on integrated and multi-function chips is paying off.

The First Call FY2009/FY2010 EPS estimates for BRCM are $1.10 to $1.54. That FY2010 EPS estimate will likely prove to be low.

Technically, Broadcom's stock chart looks strong -- an uptrend, but with above-average volatility. Hence, if you're squeamish, BRCM is not for you. Don't buy BRCM if you can't tolerate a 10-15% price drop in a month -- it could happen.

Stock Analysis: Broadcom Corp. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in BRCM now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your BRCM position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $11.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: brcm