Tuesday’s IBD 50 Stocks To Watch pick, chip leader Broadcom (AVGO), is rebounding from its key 50-day moving average line amid the current stock market pullback. Shares fell more than 1.5% midday Tuesday.
Semiconductor and infrastructure software firm Broadcom earned an adjusted $6.35 a share on revenue of $6.46 billion in the latest quarter, reported Dec. 10. On a year-over-year basis, Broadcom earnings rose 18% as sales climbed 12%.
In a news release, Chief Executive Hock Tan said Broadcom saw continued demand in the quarter for networking products from cloud computing vendors and for broadband products from service providers. He also reported a “significant ramp” in wireless chip sales.
The chipmaker reports fiscal Q1 results late Thursday, and analysts expect EPS to climb 25% to $6.55 as sales grow 13% to $6.61 billion. That would be its biggest sales and earnings growth in over two years.
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Top-Ranked Chip Stock
Broadcom ranks No. 40 in the IBD 50. (The IBD 50 is a list of leading growth stocks with strong relative price strength and top-notch fundamentals.)
The stock shows a good 87 EPS Rating, but a strong A SMR Rating, according to IBD Stock Checkup. The Earnings Per Share Rating tracks a company’s earnings strength. The SMR Rating analyzes a company’s sales, margins and return on equity.
IBD Stock Checkup also shows that AVGO stock boasts a solid 91 out of a perfect 99 IBD Composite Rating, making it one of the top-ranked stocks in the chip industry. The Composite Rating — an easy way to identify top growth stocks — is a blend of key fundamental and technical metrics to help investors gauge a stock’s strengths.
Elsewhere in the industry, Inphi (IPHI) is tracing a flat base with a 182.32 buy point. Shares are trying to maintain their 50-day line, about 8% away from their new entry.
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Stocks To Watch: Broadcom
Broadcom stock continues to rebound from its 50-day moving average, a critical support level, according to IBD MarketSmith chart analysis. Friday’s and Monday’s gains came in heavy volume, indicating strong institutional demand. The rebound puts the chip leader in a new buy area; however, buying ahead of earnings is always a risky proposition.
Rebounds from the 50-day line are best used as add-on opportunities. Be sure to purchase fewer shares when adding to an existing position to avoid drastically raising your average cost.
A real strength is the stock’s relative strength line at new highs. Despite last week’s stock market sell-off, Broadcom stood tall and is just 3% away from its all-time highs.
The RS line measures a stock’s price performance vs. the general market. It is the blue line on every IBD chart.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the stock market.
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