Broadcom Corporation (BRCM) Deserves a Place in Your Portfolio

Broadcom witnessed a 600% improvement in 3G baseband shipments in the first half of 2012, according to Strategy Analytics, and this further indicates that Broadcom has what it takes to cut its teeth in the stiffly competitive baseband landscape. Broadcom is also investing into an LTE baseband and this could enable it to improve its revenue further.

Broadcom also witnessed a 15% jump in shipments of set top box SoCs, and it won’t be surprising if the company records more gains in the future. It is looking to benefit from the advent of high efficiency video coding (HEVC), which would cut bandwidth requirements in half according to Broadcom and also enable service providers to deliver ultra HD channels.

A short-term concern

Broadcom’s infrastructure business is in a spot of bother due to constrained carrier spending, and management isn’t too upbeat about a turnaround just yet. However, infrastructure spending is expected to rebound this year according to Gartner. If a revival is indeed on the cards, Broadcom’s infrastructure business will probably receive a much-needed shot in the arm.

But growth of data centers and faster networks would help Broadcom in making more money from its infrastructure business in the long run. The market might be depressed now, but it should return back to normalcy once carriers start spending.

The takeaway

A forward P/E of 11 times as against a trailing P/E of 27 times and a PEG ratio under unity tell us that there’s growth lying ahead for Broadcom. It has a bagful of positives to boast of. It is well-positioned to benefit from higher data consumption, build out of faster networks, and sales of more mobile devices. It has a solid array of clients, is looking to tap the Chinese cellular and data market, and is highly-focused on innovation. All these factors make Broadcom a solid company to invest in.

The article This “Well-Connected” Stock Deserves a Place in Your Portfolio originally appeared on Fool.com and is written by Harsh Chauhan.

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