We recently compiled a list titled Jim Cramer’s Top 10 Stocks to Track for Potential Growth. In this article, we will look at where Broadcom Inc. (NASDAQ:AVGO) ranks among Jim Cramer’s top stocks to track for potential growth.
In a recent episode of Mad Money, Jim Cramer advised investors to hold onto their stocks, anticipating a rebound after the market’s downturn. This advice proved useful as the Dow rose by 484 points or 1.16% and the NASDAQ also climbed by 1.16%, indicating that selling during the market decline was not the best choice.
“Last week, I advised you to hold off on selling everything and just wait, as I believed that once the pain ended, we would see a rebound. The average investor saw gains, with the Dow up 484 points, or 1.16%, and the NASDAQ also climbing 1.16%. While it might not be a full recovery, it shows that selling into Friday’s downturn wasn’t the best strategy.”
Jim Cramer noted that the previous week was tough for economically sensitive and tech stocks, despite a mixed August employment report. This report suggested a balanced economic outlook, not too strong or weak, which initially seemed favorable for those hoping for Federal Reserve rate cuts. Despite this, Wall Street reacted negatively, shifting away from cyclical stocks to more recession-proof sectors like consumer goods and pharmaceuticals, with industries such as industrials and semiconductors being particularly affected.
Cramer observed that recession-proof stocks, such as pharmaceuticals and medical devices, have performed well recently but have seen significant gains, raising concerns about a potential correction.
“Today, recession-proof stocks like pharmaceuticals, drug wholesalers, and medical devices continued to perform well, which is dangerous as these stocks have seen parabolic gains and could be due for a correction.”
He highlighted that historically, when the Federal Reserve is about to cut rates, it signals a shift in investment strategy. With the Fed expected to ease rates soon, Cramer suggests investors consider moving away from recession-proof stocks and look into more cyclical companies that could benefit from economic stimulus. While investing in cyclical stocks during a downturn is challenging, the anticipated rate cuts could make these stocks more attractive. Cramer advises maintaining diversification but being ready to adjust investment strategies based on the economic outlook.
“Historically, when the Fed is about to start cutting rates, we know that it’s time to shift focus. With the Fed leaning towards easing and an expected rate cut next week, it’s time to consider moving away from recession-proof stocks and investing in more cyclical companies. While it’s challenging to buy cyclical stocks during a slowdown, anticipating that the Fed will boost the economy can make them strong investment opportunities. It’s important to maintain diversification but be ready to adjust as needed.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he talked about several stocks. From there, we picked ten companies and discussed how hedge funds are investing in them. Finally, we rank these companies from those least owned to those most owned by hedge funds.
At Insider Monkey we are obsessed with 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: 130
Jim Cramer explains that Broadcom Inc. (NASDAQ:AVGO) can be challenging to understand due to its complex operations, which aren’t widely known. He notes that unless someone delves into the intricate details of how data centers connect to the internet or the cloud, they might not grasp Broadcom Inc. (NASDAQ:AVGO)’s key growth drivers. After Broadcom Inc. (NASDAQ:AVGO)’s latest earnings report, the stock dropped from $153 to $137, despite beating expectations, because investors were concerned about the AI segment.
“Broadcom Inc (NASDAQ:AVGO) is one of the hardest stories to understand because there are so many moving parts that aren’t well known. In fact, unless you study the underlying plumbing that extends from the data center to the internet, or from the cloud to the data center, you probably wouldn’t even know Broadcom Inc (NASDAQ:AVGO)’s core growth driver. When these guys last reported, the stock fell from $153 to $137, even though it beat expectations because people didn’t like what they heard about the AI portion of the business.
Of course, Broadcom Inc (NASDAQ:AVGO) told you that its AI business remained in turbocharged growth mode and that its VMware acquisition—the business I was actually worried about—had turned the corner and gotten very strong. Almost nobody listened when the company told you all was well in AI. I wasn’t concerned about the AI division. Why? Because Hock Tan, the bankable CEO of Broadcom Inc (NASDAQ:AVGO), told us not to worry.
He said the AI business was going to accelerate. Instead of joining the negative chorus, I asked myself, “Why should I doubt this all-time great CEO when he’s been right for ages?” Now, the stock’s up to $164 and change, well above where it was trading before the so-called bad quarter. If you’d simply given this tremendous CEO the benefit of the doubt, you could have made a fortune in less than a week.”
Broadcom (NASDAQ:AVGO) offers an attractive investment opportunity due to its strong financial performance, strategic growth in artificial intelligence (AI), and diverse portfolio in the semiconductor and infrastructure software sectors. Broadcom (NASDAQ:AVGO)’s push into AI has boosted its revenue outlook significantly, with AI chip revenue expected to rise from $7.5 billion to $12 billion in FY2024, driven by high demand for AI infrastructure.
Broadcom (NASDAQ:AVGO)’s solid Q3 FY2024 earnings highlight its financial strength, with revenue reaching $13.1 billion and strong performance in both its semiconductor and software divisions. The positive trend will likely continue, with a Q4 revenue forecast of $14 billion and analysts predicting a rise to $63 billion by 2025. Despite recent stock fluctuations, Wall Street remains optimistic, with price targets indicating a potential increase of over 70%. Broadcom (NASDAQ:AVGO)’s strong position in AI, consistent financial performance, and favorable valuation make it a compelling long-term investment, even considering risks like competition and economic uncertainties.
Mar Vista Focus strategy stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“During the quarter, we established new investments in Broadcom Inc. (NASDAQ:AVGO) and Meta Platforms. We initiated a position in Broadcom in Q2. As a skilled aggregator, Broadcom Inc. (NASDAQ:AVGO) acquires firms, streamlines their operations, and invests R&D dollars in mission critical products that generate industry leading profit margins, robust cash flows and high returns on invested capital. Its primary markets include AI accelerators targeting generative AI applications, networking & wireless semiconductors, and mission-critical infrastructure software solutions.
Broadcom Inc. (NASDAQ:AVGO) is well-positioned to benefit from the rapidly expanding demand for custom AI accelerator chips that support the evolution of the generative AI market. The company is the second-largest producer of AI accelerator chips behind Nvidia and leads the market in custom AI ASIC chips. Its customers include leading hyper scalers like Alphabet and Meta who are turning to Broadcom Inc. (NASDAQ:AVGO) for custom silicon due to its performance and cost advantages. We believe the company is a direct beneficiary of a multi-year capital cycle driven by hyper scalers building out next-generation AI factories… (Click here to read more)
Overall AVGO ranks 2nd on the list of Jim Cramer’s top stocks to track for potential growth. While we acknowledge the potential of AVGO as an investment, 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 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 was originally published on Insider Monkey.