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Broadcom and 4 Other Semiconductors Set to Outperform

Zacks Equity Research

The technology sector has been one of the brighter spots for investors so far this year. We note that the Technology Select Sector SPDR ETF XLK has gained 10.4% year to date, which is much better than S&P 500’s increase of 6.5%. The technology heavy Nasdaq has gained 9.6% during the year-to-date timeframe.

The preference for technology space is primarily driven by its dynamic nature. It is expected to grow faster than ever before on the back of emerging technologies like Internet of Things (IoT), Big Data, 5G connectivity, Autonomous Car and the ubiquitous Cloud Computing. Therefore, if you invest right, you can reap the benefits over time.

Among the 11-sub industries in the broader technology sector, the semiconductor industry has been one of the outperformers so far this year. We note that iShares PHLX Semiconductor ETF SOXX  has gained 11% year-to-date, driven by strong earnings results from well-known names like Broadcom AVGO, NVIDIA NVDA and Advanced Micro Devices AMD.

In fact, the forecast for the upcoming first quarter is significantly positive. As per the latest Earnings Trend, the technology sector is poised to grow 10.2% from the prior comparable period. We believe that increasing demand for high computational chips that are the building blocks of cloud computing, big data and artificial intelligence (AI) will drive growth going ahead.

Why Broadcom?

Broadcom has been one of the most consistent performers in the semiconductor industry. Shares have increased almost 27% on a year-to-date basis, a much better performance than NVIDIA and Intel, which are down 3.9% and 3.2%, respectively. Further, the company is outperforming AMD stock, which is up 23.3% year to date.

The outperformance is primarily owing to Broadcom’s robust revenue growth and expanding margins. We note that the company has posted positive earnings surprise of 5.95% in the trailing four quarters. (Read More: Broadcom Beats on Q1 Earnings & Revenues; Shares Up)

Per Bloomberg “The company’s earnings are an indicator of demand across the mobile phone, wireless and fixed-line and computer industries.” With one of the most diversified communications platforms in the industry, Broadcom remains well poised for healthy long-term growth. Over the next 3-5 years, the company’s earnings are anticipated to increase at 13.60% rate.

Broadcom has also witnessed significant earnings estimate revision in the last 30 days. The EPS estimate for the current year increased 6.8% (82 cents) to $12.91 per share over the same period.

4 Other Semiconductors Poised to Outperform

We note that Broadcom has a favorable combination of VGM Score of “B” and Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Here we have picked four other stocks from the industry that have performed more-or-less similar to the company and also have the favorable combination of a VGM score of “A” or “B” and Zacks Rank #1 or 2 (Buy).

Applied Optoelectronics Inc. AAOI sports a VGM score of “A” and a Zacks Rank #1. Current year EPS estimate has soared 76% to $3.14 in the last 30 days.

  • Year-to-date Return : 99.1%
  • Average four-quarter Surprise: 116.49%
  • Long-term EPS Growth Estimate: 18.33%

Skyworks Solutions SWKS has a VGM score of “A” and a Zacks Rank #2. In the last 30 days, current year EPS estimate has remained steady at $5.82 per share.

  • Year-to-date Return : 31.4%
  • Average four-quarter Surprise: 2.65%
  • Long-term EPS Growth Estimate: 14.44%

AXT Inc. AXTI has a VGM score of “B” and a Zacks Rank #2. In the last 30 days, the company’s fiscal 2017 EPS estimates have increased a penny to 21 cents per share.

  • Year-to-date Return : 39.6%
  • Average four-quarter Surprise: 118.75%
  • Long-term EPS Growth Estimate: 17.50%

Pixelworks Inc. PXLW has a VGM score of “B” and a Zacks Rank #2. Current year EPS estimate has advanced a dime to 12 cents per share in the last 30 days.

  • Year-to-date Return : 63.5%
  • Average four-quarter Surprise: 59.36%
  • Long-term EPS Growth Estimate: 20.00%

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Skyworks Solutions, Inc. (SWKS): Free Stock Analysis Report
Broadcom Limited (AVGO): Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report
AXT Inc (AXTI): Free Stock Analysis Report
Applied Optoelectronics, Inc. (AAOI): Free Stock Analysis Report
Pixelworks, Inc. (PXLW): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
SPDR-TECH SELS (XLK): ETF Research Reports
ISHARS-PHLX SEM (SOXX): ETF Research Reports
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