The advance in demand of mobile and tablet technology should continue to drive Broadcom Corporation (NASDAQ:BRCM)’s growth. By offering a wide array of products, including chips that integrate multiple functions, the firm is well positioned to benefit from this situation; as a market share leader it provides to the most important manufacturers in the segment, like Apple, Samsung and Cisco. The ongoing expansion of the Pay-TV and internet market in emerging economies, especially India and China, should provide further growth opportunities.
A new product was launched a few days ago and promises to boost the firm’s revenue. It’s the industry’s lowest power consuming multi-port Gigabit physical layer transceiver, which delivers higher accuracy and consumes 40% less power than similar products in the market. This innovative product should help the company capture a bigger share of the market in the upcoming quarters, especially as handset designers tend to apply the collection of features and functions in their high-end products in order to remain competitive.
Trading at 25.8 times its earnings and 12.63 times consensus estimates, versus the industry averages of 49.5 and 26.31, respectively, I´d say that the stock is undervalued and comprises a strong buy, especially for the long-term. However, upside is expected in the shorter term, as average stock price target of $40.79 is set 11% above the current value.
Applied Materials: Revolutionary stock in the semiconductor industry
As one of the largest suppliers of fabrication equipment for semiconductors, LCD and solar PV (PhotoVoltaic) cells, Applied Materials, Inc. (NASDAQ:AMAT) provides compelling growth prospects, principally due to its huge advantage in R&D and its wide product offering. While margins have not been the best-in-class, several cost-cutting initiatives are being put in place.
Trading at only 14 times 2014´s EPS consensus estimate, I’d say Applied Materials, Inc. (NASDAQ:AMAT) is a buy, especially as growth is expected
at 73.8% for 2014 and at 9-10% until 2018. Here are some extra reasons to be long on this company:
- Its wide product portfolio, allows it to compete in almost every segment in the industry, attracting huge customers, not only for its R&D, but also for its pricing. Close relations with its clients help it create a high level of loyalty while gaining insight of the latest demands in the technology business.
- A strong balance sheet and plenty of free cash to be used provides the company with a considerable degree of immunity to the cyclical nature of the industry. At the end of first quarter, cash and short term investments reached $1.75 billion. Furthermore, the capability to deploy capital as needed allows it to penetrate new markets rather easily through both internal development and acquisitions, bolstered by strong marketing initiatives (Morningstar). Free cash is also allocated to dividends and repurchases. Actually, the company currently yields an attractive and constantly increasing 2.7%.
- Not only will Applied Materials, Inc. (NASDAQ:AMAT) benefit from the advance in mobile tech and the resulting boost in the production of semiconductors, but also from a growing demand of solar equipment, a segment that the firm has been and will continue to develop with encouraging early results, particularly in European countries. This business is less cyclical than the semiconductor sector, thus providing stability to the company.
Bottom line
Due to the constant increase in demand of mobile solutions and use of chips in almost everything, companies related to the semiconductors business seem to offer outstanding growth prospects. All of the above companies comprise buy cases; take a look and make a pick while they are still reasonably valued. These stocks’ prices could rocket at any time.
The article Buy the Smartphone Chip Suppliers originally appeared on Fool.com and is written by Victor Selva.
Victor is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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