We recently published a list Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. Since Broadcom Inc (NASDAQ:AVGO) ranks 2nd on the list, it deserves a deeper look.
Venu Krishna, Head of U.S. Equity Strategy & Global Equity Linked Strategies at Barclays, recently shared a basket of stocks he recommends offsetting the risks that come from market concentration in big tech stocks. In an interview with CNBC, Krishna emphasized that he remains inclined towards big tech stocks, but the important question he addressed is which stocks offer more value outside of the tech sector in the long term.
Krishna’s methodology to find some of the best stocks outside of the tech sector is simple: find out at what “core fundamental” metrics big tech stocks are “excelling” at and then “try to come close to that and create a portfolio which can give us that kind of exposure.” Through this methodology, Krishna says, he came up with a well-diversified portfolio of stocks that could act as a “hedge” against market concertation in big tech.
Krishna said he applied “liquidity filters” on the whole market to remove a “bunch of companies” and narrow down to stocks with strong growth and FCF multiples.
Despite him pointing out the concentration of gains problem, Venu Krishna believes the rise of big tech stocks is a “healthy trend” and some of the gains are now bifurcating to other sectors, too.
However Krishna said that over the past 18 months his portfolio of stocks has lagged behind the Big Tech, but outperformed equal-weighted S&P 500 and market cap-weighted S&P 500.
For this article, we took a look at Krishna’s latest basket of stocks to offset concentration in big tech risks and picked 10 stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician working at a magnified microscope, developing a new integrated circuit.
Broadcom Inc (NASDAQ:AVGO)
Number of Hedge Fund Investors: 115
Venu Krishna of Barclays added Broadcom in his portfolio of stocks to offset tech concentration risks. While Broadcom Inc (NASDAQ:AVGO) is directly exposed to the AI semiconductor market, some believe the stock is priced for perfection, with a P/E multiple of 52 and YTD share price gain of 30%. In the first quarter Broadcom Inc (NASDAQ:AVGO) saw a 34% revenue growth, which surprised the Wall Street. However, adjusted earnings clocked in growth that was significantly less than revenues, indicating limited margins. Broadcom Inc’s (NASDAQ:AVGO) EV/EBITDA is 22.5, much higher than its five-year average of 14 and sector median of 14. Broadcom Inc’s (NASDAQ:AVGO) debt levels are also worrying for many. It has $73,429 million in long-term debt and $2,374 million in current debt. Broadcom Inc’s (NASDAQ:AVGO) revenue growth is expected to come in at 13% next year and 15.10% over the next five years on a per-annum basis. This means Broadcom Inc (NASDAQ:AVGO) is a laggard when compared to industry leaders like NVDA. The stock’s one-year average analyst price estimate set by Wall Street is $1533, representing an upside potential of just 9%.
Carillon Eagle Growth & Income Fund stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its first quarter 2024 investor letter:
Broadcom Inc. (NASDAQ:AVGO) continues to trade higher as a beneficiary of generative artificial intelligence (AI). Management recently highlighted that AI-related silicon now comprises a significant percentage of all semiconductor solution sales. The company also is focused on integrating its acquisition of VMware.
Overall, Broadcom Inc (NASDAQ:AVGO) ranks 2nd on Insider Monkey’s list titled Analyst Recommends 10 Best Stocks to Diversify Your Portfolio Away from Mega-Cap Tech and AI Stocks. While we acknowledge the potential of Broadcom Inc (NASDAQ:AVGO), our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Broadcom Inc (NASDAQ:AVGO) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.