Stan Wong Broadcom AVGO-Q HOLD Sep 12, 2024

Is making new highs, breaking out. Looks good but is likely overbought. Will pull back to its last peak, a support level.

(Stock split 15 July 2024)  His colleagues really did some great research on this last year. In his dividend growers portfolio, and it's increased mightily over the last 8-9 years. On vanguard of supplying chips to hyperscalers. Long runway of growth.

Want to own leading stocks in sectors that are in favour. Breadth in the semi sector is improving. Made a new 5-year high. Trades better than 94% of companies in the S&P over last 52 weeks. Follow with a trailing stop, which lets you stay in a winning position until you see something changing.

He likes it for the AI market. It sells custom AI chips to companies like Google and Meta for specific applications. It is very efficient and manages margins very tightly at 60% of EBITA. Trades at 37X earnings so it is not cheap.                Buy 47  Hold 5  Sell 1

NVDA is the clear winner, because its chips make AI possible. There is some competition out there, but AVGO isn't one of them. 

In his dividend growers mandate. Very compelling organic growth. Over coming 3 years, earnings expected to grow 20% and the dividend along with them. Capital allocation framework and organic growth prospects are better than ADBE. 

Software companies are spending all the $$ in the AI race. Who's getting it? The hardware makers, so chip makers are well positioned. Continues to buy.

In the hot part of the market. Momentum of the business is decidedly positive. Not cheap, but the return has been great. His firm doesn't buy at high prices, because when there's a hiccup (which you can't forecast) it can turn into pneumonia. That's the risk.

Chart's gone parabolic, indicators are screaming overbought. The thing about mean reversion, is there's no justice in the market and it doesn't have to happen that way. You either say you'll buy more when it goes down, but it never does. Or you decide to buy on the downswing, and it just keeps diving.

Be cautious, just because of the steep parabolic move on the chart. Look for it to go sideways. If you don't own, don't jump in now. If you do own, clip some profits now but keep your base position.

Chips are difficult because they're cyclical. Cycles tend to be long, and painful on the downside. An upcycle means great days, but you have to time the entry and exit. See his Top Picks for a name with less of a risk profile.

Portfolio construction and management are paramount for his firm. In his dividend growers mandate. Opportunity in front of them is fantastic with AI and data centres. But it's now at a point where it's subject to idiosyncratic risk if it becomes too big a position size in a portfolio. Be prudent.