Avago: Red-Hot Play on Apple

07/02/2015 8:00 am EST

Focus: STOCKS

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

Our latest recommendation is in a red-hot technology sector; it develops and supplies analog semiconductor devices for over 40,000 customers in wireless communications and wired infrastructure, explains Nicholas Vardy, editor of Bull Market Alert.

Singapore-based Avago Technologies Limited (AVGO) develops and supplies analog semiconductor devices for over 40,000 customers in wireless communications and wired infrastructure.

Most notably, it makes radio frequency chips that are used in the Apple (AAPL) iPhone, as well as smartphones from Samsung and other mobile-device companies.

Other Avago customers include Cisco Systems (CSCO), Hewlett-Packard (HPQ), China-based Huawei (CH: 002502) and Germany-based Siemens (SIEGY).

Avago was actually a part of Hewlett-Packard for three decades before it was spun off, with the whole HP semiconductor business, as part of Agilent Technologies.

Today, Avago operates design centers in Asia, Europe, and the United States, while its manufacturing facilities are primarily in Asia. About 85% of its sales come from outside of the United States.

Up over 42% in 2015, here’s why I think Avago is set to continue its market-trouncing bull run.

First, spin-offs like Avago have a strong record of outshining the market. An index of just such companies has outperformed the broader S&P 500 by over 50% in the past five years.

Second, Avago recently announced a $37 billion acquisition of Broadcom (BRCM), another Apple supplier.

The combined company will have annual revenue of $51 million, behind only Qualcomm (QCOM) and Intel (INTC).

After the deal closes in Q1 of 2016, the combined company will keep the Broadcom name.

Third, Avago also recently announced better-than-expected quarterly results. Earnings per share rose 151% from a year earlier, keeping intact a long streak of accelerating earnings growth.

Analysts forecast a 70% EPS increase in the next report. They also see a 77% increase in earnings this fiscal year.

The stock boasts very high relative strength versus the broader US market and is ranked #1 in its group by Investors’ Business Daily within a sector ranked #3 out of 197.

Technically, the stock is in a solid uptrend and, ideally, is slightly oversold in the short-term.  Buy Avago and place your initial stop at $125.00.

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