Market Irrationality Provides Opportunity To Pick Up This Apple Supplier On The Cheap

| About: Broadcom Limited (AVGO)
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I must admit that I do not understand market action at times, even after watching and trading it for 25 years. Amazon (NASDAQ:AMZN) reported earnings after the bell Thursday that were light on the top line as well as the bottom line, and reported its first loss since 2003. In addition, it stated that spending investment on building out its distribution centers will be higher than investors had forecast. Finally, state sales taxes are starting to hit margins as well. Not only does the stock not crater, but it is actually up on a down day. If I was President Obama I would get Jeff Bezos on the next plane to D.C. to conduct a few conference calls with reporters and voters, as he would probably cruise to re-election with this master of spin by his side.

But I digress, as I want to talk about the other side of the ledger. Broadcom (BRCM) reported earnings on Tuesday that surprised to the upside on both the top and bottom lines. The stock dropped some 5% on concerns around margins, although that was partially driven by an 18% increase in R&D expenses. I believe the market's reaction gives investors a chance to pick up Broadcom, a key Apple (NASDAQ:AAPL) supplier, on the cheap.

Here are key earnings highlights and other recent positive catalysts around Broadcom:

  • Earnings came in at 79 cents a share, besting estimates by two pennies a share.
  • Revenues were $2.13 billion, $40 million above consensus estimates.
  • Mobile and Wireless revenues grew almost 14% sequentially.
  • Capstone Investments initiated the shares as a "Buy" this month.
  • Even Jim Cramer is on the Broadcom bandwagon, and is using the sell-off on how investors act irrationally at times.

Broadcom designs and develops semiconductor solutions for wired and wireless communications. It provides a portfolio of system-on-a-chip and software solutions and supplies components to the iPhone, among other mobile devices.

Here are four additional reasons to buy BRCM at under $32 a share:

  1. Revenue growth of 8% to 9% is projected for both FY 2012 and FY 2013. The stock sports a five-year projected PEG of under 1 (0.89), and sales growth could be help significantly if Apple is successful in picking up the production of the iPhone5. The company has grown revenues at a 16% annual clip over the past five years.
  2. The stock is selling near the bottom of its five-year valuation range based on P/E, P/S, P/B, and P/CF.
  3. The 42 analysts who cover the stock have a median price target of $40 a share on Broadcom, more than 25% its current stock price.
  4. The company has beat earnings estimates for 12 straight quarters and is priced at under 11 times forward earnings, a discount to its five-year average (18.4).

Disclosure: I am long AAPL, BRCM. I am also short AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.