We recently published a list of 15 Best Stocks to Buy According to Hosking Partners. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other best stocks to buy according to Hosking Partners.
Hosking Partners was established in 2013 by Jeremy Hosking as an independent partnership that offers a single global equity strategy. The firm appeals to investors seeking long-term returns and innovative thinking employing a capital cycle approach to investing. It has a diverse set of stocks in its portfolio that belong to a variety of industries consisting of AI, shipping, and financial services, among others. Jeremy Hosking earned an MA from the University of Cambridge, after which he served Marathon Asset Management 26 years as a founding partner and lead portfolio manager. There he contributed to developing the capital cycle approach to investment.
In its recent blog about shipping, Hosking Partners believes that understanding the cycles in different classes of shipping and global trends is essential for successful investment in the industry. Currently, Shipping (covering the container, dry bulk, product tanker and LNG sub-sectors) represents 1.25% of the portfolio. Global trade has declined as a percentage of GDP since 2010 caused by deglobalization, accelerated by the COVID-19 pandemic and geopolitical instability from the Russia-Ukraine war. This trend, coupled with the energy transition, is expected to constrain future supply and increase commodity price volatility, benefiting shipping by enabling cross-border trade.
Furthermore, shipping is a significant emitter of CO2, accounting for about 3% of global emissions. Environmental regulations aim to reduce emissions, but uncertainty over future fuel technology deters investment in new ships, leading to a tighter supply. The industry’s efficiency, measured by emissions per tonne-km, remains high compared to other transport modes. The shipping industry is at a pivotal juncture, with significant transformations driven by AI, the energy transition, and ESG considerations.
Another industry that Hosking Partners talks about is copper mining. Copper is often seen as a barometer for economic health and is crucial for the energy transition, including electric vehicles, power grids, and wind turbines. Wall Street banks are optimistic about copper prices, forecasting significant gains. Citi analysts suggest that prices could surge to over $15,000 per ton in the next 2-3 years if a strong economic recovery occurs, while their base case projects a rise to $12,000 per ton with modest demand growth through 2025 and 2026. Bank of America has also increased its 2024 copper price target to $9,321 from $8,625, citing tight mine supply and high demand driven by the energy transition as key factors.
However, some experts are cautious. Colin Hamilton of BMO Capital Markets argues that commodity markets tend to self-correct, and if supply issues persist, demand may adjust, potentially leading to lower prices. Hamilton suggests that while high price targets might be temporarily achievable, adjustments in demand could follow. The market may see a modest surplus due to increased mined supply, which is projected to grow by 4-4.5%. This is largely driven by new greenfield and brownfield projects. Despite the near-term surplus, long-term scarcity is anticipated as regulatory and political challenges in South America could impede the development of new mines.
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Broadcom Inc (NASDAQ:AVGO)
Hosking Partners’ Stake Value: $58,198,857
Percentage of Hosking Partners’ 13F Portfolio: 2.15%
Number of Hedge Fund Holders: 130
Broadcom Inc (NASDAQ:AVGO) recently reported a 43% year-over-year increase in second-quarter revenue, with AI revenue surging by 280%. The company’s diverse revenue streams span enterprise, networking, storage, data center/hyperscaler, industrial, and consumer sectors. For 2024, Broadcom has raised its annual revenue guidance to over $51 billion, anticipating growth of more than 40%. A substantial part of this growth is expected to come from software, which will also improve margins.
BofA Securities considers Broadcom Inc. (NASDAQ:AVGO) a top tech stock offering an attractive entry point after the recent market selloff. TD Cowen also highlighted Broadcom as a major beneficiary of increasing AI spending, noting that the company has raised its full-year AI revenue outlook to $11 billion for 2024, with no signs of declining AI demand.
In its recent second-quarter results, Broadcom reported a 43% year-over-year revenue increase, with AI-related revenue surging 280%. The company’s revenue is diversified across sectors like enterprise, networking, storage, data centers, industrial, and consumer markets. Broadcom raised its annual revenue guidance for 2024 to over $51 billion, expecting over 40% growth, driven largely by its expanding software business, which also boosts profit margins.
Broadcom’s Ethernet business remains robust, supported by partnerships with companies like Arista Networks, Dell, Juniper, and Super Micro. The company has also developed custom AI chips in collaboration with Google and Meta Platforms.
As a leading semiconductor company, Broadcom is heavily invested in AI, making it a smart stock pick for investors, particularly with its growth in AI semiconductors and the acquisition of VMware. These factors contributed to the company’s strong second-quarter earnings, and Broadcom is dominating in the market for hyper-scale custom compute and networking chips. With high-profile clients like Google and Meta, Broadcom’s involvement in the AI sector is a key driver of its growth, making it a popular choice among investors.
Hosking Partners also holds NVIDIA’s shares in its portfolio with a c. 0.5% weight but a 3.5% weight in the benchmark and cost the strategy 0.9% following strong results that demonstrated its dominance of the artificial intelligence (AI) space. According to its Quartely Commentary of Q2 2024, Hosking Partners said, “We own Nvidia because its combination of both hardware and software (its Cuda platform) make it likely that it will take the lion’s share of the profit pool from parallel processing, of which generative AI is just one application.”
Aristotle Atlantic Large Cap Growth Strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“We view Broadcom’s semiconductor business as being very well positioned to benefit from secular growth in data center networking, which is being driven by AI and cloud computing. The company continues to invest in research and development, and we see this as a competitive advantage for the company. Broadcom’s infrastructure software business is a recurring revenue business model that provides mission-critical mainframe support software to its customer base. The recent VMware acquisition will enhance this business strategy and accelerate the growth rate of this business unit, as VMware’s product suite includes key tools for AI server upgrades. Our long-term investment thesis is supported by Broadcom’s success in its strategy of maintaining technology and market share leadership in mission-critical markets with high switching costs and deep profit pools.”
Overall AVGO ranks 11th on our list of the best stocks to buy according to Hosking Partners. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that 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 AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
