With the markets looking a little rocky and tax selling season starting, I wouldn't jump head first into this market. I'm looking to protect my money and gains for the year. To do this I'm selling options that are 1-3% out of the money on stocks I want to purchase. By doing this I'm giving the market some room to move down as well as making sure I make some money in the process. Even if the stock never hits my strike price I'm still going to collect the premium and add to my gains for the year. A stock that is beginning to look cheap within the technology space is Broadom (BRCM).
Broadcom is a fabless semiconductor company founded in 1991 that focuses on communication products. Not only is this a good company but it's a great alternative to Apple due to its exposure to multiple smartphone maker. Broadcom allows devices to communicate using NFC, Wi-Fi, and bluetooth. NFC is quickly becoming popular and is in many android devices. Wi-Fi as well as bluetooth are common in almost every device we use today.
Broadcom's goal is to simply "Connect everything." Its products are in everything we use from our mobile phones to many of our computers and it holds the dominant position. While the dividend is a paltry 1.3%, the company's growth projections are far from. So let's look at some of the pros and cons of becoming a shareholder in this great company.
- The balance sheet is solid with a net cash position of $400 million
- It pays a dividend that is growing at an 11% clip since it was initiated in 2010
- It has 10,300 patents and over 7,500 patents pending
- It is not tied to just one company because its chips are in every major smartphone
- The company is fabless
- It trades at just 11 times earnings
- While the balance sheet is solid I would like to have seen a larger net cash position than $400 million
- Samsung (SSNLF.PK) just bought a similar company to Broadcom but due to the company's size I don't believe this will hurt Broadcom's profits much, if at all.
In conclusion, I believe the market is giving us an amazing opportunity to buy a great company at $30. To make some extra cash I recommend selling the DEC $30 strike put for .60 or 2%.
Disclosure: I am long BRCM.