Here is What Hedge Funds Think About Broadcom Limited (AVGO)

How can one determine whether Broadcom Limited (NASDAQ:AVGO) makes for a good investment at the moment? The Insider Monkey team analyzes the sentiment of a select group of top investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right, but data show that their consensus long positions have historically outperformed broader market benchmarks. In support of this thesis, Goldman Sachs’ VIP list, which includes 50 most-owned stocks among hedge funds’ ten largest holdings, has beaten the S&P 500 gauge on a quarterly basis 64% of the time since 2001. Interestingly, this basket of stocks compiled by Goldman delivered a gain of 23% in 2015, so it does pay off to follow hedge fund activity. That being said, let’s take a close look at the hedge fund activity around Broadcom Limited during the final quarter of 2015.

Broadcom Limited (NASDAQ:AVGO) was in 62 hedge funds’ portfolios at the end of December. AVGO has seen a decrease in hedge fund sentiment in recent months. There were 66 hedge funds in our database with AVGO positions at the end of the previous quarter. At the end of this article we will also compare AVGO to other stocks, including PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ), Delta Air Lines, Inc. (NYSE:DAL), and Caterpillar Inc. (NYSE:CAT) to get a better sense of its popularity.

If you’d ask most shareholders, hedge funds are viewed as unimportant, outdated financial vehicles of years past. While there are over 8000 funds in operation at the moment, Our researchers look at the upper echelon of this group, about 700 funds. These money managers have their hands on the majority of the hedge fund industry’s total capital, and by watching their highest performing investments, Insider Monkey has determined various investment strategies that have historically outpaced Mr. Market. Insider Monkey’s small-cap hedge fund strategy surpassed the S&P 500 index by 12 percentage points a year for a decade in their back tests.

In May 2015, semiconductor company Avago Technologies agreed to buy Broadcom Corporation in a cash-and-stock deal valued at $37 billion. The multi-billion-dollar merger was completed on February 1 this year, after which the name of the freshly-combined company was changed to Broadcom Limited. Broadcom Limited (NASDAQ:AVGO), the successor of the Broadcom-Avago merger, published its financial results for the first quarter of fiscal year 2016 that ended January 31, which triggered a wave of demand for the company’s shares and analyst upgrades. Following the release of the earnings report, analysts at Deutsche Bank reiterated the ‘Buy’ rating on the stock and lifted the price target to $180 from $157, citing an impressive guidance for the second quarter of fiscal 2016. Moreover, analysts at Credit Suisse reiterated their ‘Outperform’ rating on Broadcom and raised the price target to $180 from $160.

It is widely known that Broadcom Limited (NASDAQ:AVGO) represents a long-time supplier of communication chips to Apple Inc. (NASDAQ:AAPL), so the recent worries about slowing iPhone sales might have put some pressure on the company’s stock performance. Analysts at Pacific Crest Securities recently suggested that iPhone inventories have started to steady despite disappointing iPhones sell-through (actual sales to end users). These analysts believe that the second quarter will most likely represent the bottom for Apple component suppliers, including Broadcom Limited. The shares of Broadcom are currently trading at 11.42-times expected earnings, slightly above the forward P/E multiple of 12.9 for the Semiconductor Equipment industry.

Now, let’s go over the latest action surrounding Broadcom Limited (NASDAQ:AVGO).

How are hedge funds trading Broadcom Limited (NASDAQ:AVGO)?

At Q4’s end, a total of 62 of the hedge funds tracked by Insider Monkey were long this stock, a decline of 6% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Silver Lake Partners, managed by Jim Davidson, Dave Roux and Glenn Hutchins, holds the most valuable position in Broadcom Limited (NASDAQ:AVGO). Silver Lake Partners has a $2.00 billion position in the stock, comprising 28.2% of its 13F portfolio. On Silver Lake Partners’s heels is Viking Global, led by Andreas Halvorsen, holding a $1.07 billion position; the fund has 4% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish comprise Daniel S. Och’s OZ Management, Philippe Laffont’s Coatue Management and James Dinan’s York Capital Management.

Judging by the fact that Broadcom Limited (NASDAQ:AVGO) has faced falling interest from the entirety of the hedge funds we track, logic holds that there lies a certain “tier” of fund managers who were dropping their entire stakes last quarter. It’s worth mentioning that John Lykouretzos’s Hoplite Capital Management sold off the largest investment of all the hedgies tracked by Insider Monkey, worth close to $111.8 million in ‘Call’ options, and Daniel S. Och’s OZ Management was right behind this move, as the fund dropped about $61.9 million worth of shares. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds last quarter.

The next page of this article will reveal the hedge fund activity in companies with market caps close to the one of Broadcom Limited.

Let’s now review hedge fund activity in other stocks similar to Broadcom Limited (NASDAQ:AVGO). These stocks are PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ), Delta Air Lines, Inc. (NYSE:DAL), Caterpillar Inc. (NYSE:CAT), and ABB Ltd (ADR) (NYSE:ABB). This group of stocks’ market caps match AVGO’s market cap.

As you can see these stocks had an average of 42.75 hedge funds with bullish positions and the average amount invested in these stocks was $2.58 billion. That figure was $7.26 billion in AVGO’s case. Delta Air Lines, Inc. (NYSE:DAL) is the most popular stock in this table. On the other hand ABB Ltd (ADR) (NYSE:ABB) is the least popular one with only 11 bullish hedge fund positions. Broadcom Limited (NASDAQ:AVGO) is not the most popular stock in this group, but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard DAL might be a better candidate to consider a long position.

Disclosure: None