This Tech Company Is More Than Just a ‘Cupertino Connection’
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
To most tech enthusiasts, Broadcom (NASDAQ: BRCM) is known just as an Apple (NASDAQ: AAPL) supplier. For the curious investors, though, that start to peel back the covers on this chip maker, there are many bullish growth drivers in addition to its Cupertino connection.
Earlier this week, we discussed some recent comments made by Broadcom's CEO (see the full recap here on Insider Monkey) on the subject of its 5G WiFi chip technology. Scott McGregor had quite a bit to say, but to break it down simply, the head honcho shared that he predicts "probably by the end of the year you'll see most of high-end smartphones carrying 5G WiFi." While he didn't mention Apple specifically, the CEO did say that his company has a "pretty good share in both Apple and Samsung," calling the relationships "agnostic."
According to the company itself, Broadcom's newest 5G WiFi chips are three times faster and six times more efficient than previous 802.11an technology; Apple uses a slight variant of the latter in its iPhone 5.
Worth mentioning is that the 802.11ac format, which is what Broadcom's 5G WiFi chip is based off of, is on the doorstep of industry standardization. Still, Broadcom was the first to publicly introduce the product last year, and was making some headway at the CES conference recently.
At the widely covered tech event, Broadcom shed light on its first-in-industry 5G WiFi-enabled TV set-top box. Moreover, the technology will be featured internally in the first smart television equipped for the chip, made by LG Electronics. Equally as important, Broadcom also announced a deal with Samsung to support the tech giant's own smart TV set-top box equipped with Android ICS and Google (NASDAQ: GOOG) Mobile Services.
We now know that Broadcom will be powering NetGear (NASDAQ: NTGR)'s 200Mbps Powerline network adapters, and finally, the company shared that it had reached an agreement to spearhead Comcast (NASDAQ: CMCSA)'s new cloud system, which prides itself on mobile functionality.
Here's an interesting related tidbit: in an interview with Comcast's VP of mobility solutions Randall Hounsell (via StreamingMedia), the exec discussed the prospects on an Apple smart TV. "We know they're coming," he said, before clarifying that the company doesn't "know what it's going to look like." Now, logically speaking, it's quite possible that Broadcom could be linked to an Apple TV as well, but we'll hold off on speculation for now.
From an investment standpoint, Broadcom offers investors solid EPS growth--estimated to average 14.0% a year over the next half-decade. At a forward P/E under 12x, shares of BRCM are cheaper than Google (16.0x), NetGear (14.2x) and Comcast (17.3x), but are not as discounted as Apple (9.2x) at the moment. Closer competitors like ARM (47.7x) and Nvidia (12.9x) are more expensive than Broadcom as well. In addition to the attractive valuation, Broadcom also gives investors a decent dividend yield of 1.2%; only Comcast (1.7%), Apple (2.0%) and Nvidia (2.4%) offer a higher payout of the peers mentioned.
Wall Street currently holds an average price target of $40.89 on Broadcom, which represents close to a 17% upside from current levels. Of the nearly 400 hedge funds we track at Insider Monkey, the size of capital committed to BRCM jumped by almost 30% in the latest round of 13F filings with the SEC. Some of the most bullish money managers invested in the stock are David Tepper, Ken Griffin and Paul Tudor Jones (see all of David Tepper's top stock picks).
For a longer look at Broadcom in general, check out the entire hedge fund industry's sentiment toward the tech company.
This article is written by Jake Mann and edited by Meena Krishnamsetty. Meena has long positions in Apple and Google.The Motley Fool recommends Apple, Google, and Netgear. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!