Is Broadcom (AVGO) A Great Stock Investment?

[view original post]

ClearBridge Investments, an investment management firm, published its “Multi Cap Growth Strategy” second quarter 2021 investor letter – a copy of which can be downloaded here. The ClearBridge Multi Cap Growth Strategy underperformed its Russell 3000 Growth Index benchmark in the second quarter. On an absolute basis, the Strategy generated gains across the seven sectors in which it was invested (out of 11 sectors total). The primary contributor to performance was the information technology (IT) sector. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of ClearBridge Investments, the fund mentioned Broadcom Inc. (NASDAQ: AVGO), and discussed its stance on the firm. Broadcom Inc. is a San Jose, California-based semiconductor manufacturing company, that currently has a $192.03 billion market capitalization. AVGO delivered a 6.90% return since the beginning of the year, extending its 12-month revenues to 49.68%. The stock closed at $468.07 per share on July 16, 2021.

Here is what ClearBridge Investments has to say about Broadcom Inc. in its Q2 2021 investor letter:

“A good way to conceptualize how we think about portfolio construction is to picture a pyramid. At the bottom of the pyramid are the durable compounding growth companies that form the strong foundation, resilience and consistency for the Strategy. We think these companies should comprise just under half of portfolio assets and feature annual revenue growth rates ranging from two times GDP up to 20% as well as healthy free cash flow generation.

Broadcom has delivered similar long-term appreciation through a combination of organic growth, capital deployment into new and adjacent opportunities through merger and acquisition activity as well as returning capital to shareholders through buybacks and dividends.”

Semiconductor

electronics-6055226_1280

Based on our calculations, Broadcom Inc. (NASDAQ: AVGO) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Broadcom Inc. was in 53 hedge fund portfolios at the end of the first quarter of 2021, compared to 59 funds in the fourth quarter of 2020. AVGO delivered a -2.24% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.