It doesn’t take long for fortunes to change on the Street. Avago Technologies Ltd (NASDAQ:AVGO), which was mired in short-term weakness just a quarter ago, bounced back with a vengeance after beating consensus estimates in the second quarter and issuing a sunny guidance for the ongoing one.
Unsurprisingly, analysts started their customary price upgrades and investors were raving about the prospects of the company. However, Avago’s long-term growth story was never in doubt and the weakness in the previous quarter was just a temporary incident driven by seasonality.
Avago Technologies Ltd (NASDAQ:AVGO)’s diversified business; its compelling valuation, an almost pristine balance sheet, and a solid dividend yield are some good reasons why this stock can still find a way into your portfolio. More importantly, the company’s end-markets should only get better from here and it won’t be surprising if Avago goes on a market-beating run from here.
Apple Inc. (NASDAQ:AAPL)’s back and Samsung rocks
The major reason behind Avago’s tepid outlook three months back was the product transition at Apple Inc. (NASDAQ:AAPL), which had happened a quarter earlier than usual. However, Avago Technologies Ltd (NASDAQ:AVGO) also supplied content for the Samsung Galaxy S4, and this acted as a hedge against lower orders from Foxconn (aka Apple).
Avago has got multiple catalysts to drive its wireless business, which accounts for half of its overall revenue. Firstly, management stated that they are at the beginning of “a very strong ramp from our North American smartphone OEM customer as they transition to the next-generation platform.”
Now, Avago had supplied wireless chips for the iPhone 5 that prevent interference among radio signals, and with Apple reportedly targeting a September launch, component suppliers such as Avago Technologies Ltd (NASDAQ:AVGO) should see a couple of strong quarters going forward. Apple had faced supply constraints last time due to overwhelming demand for the iPhone 5, and the smartphone behemoth wouldn’t probably take such chances this time.
Also, with the rumors of a cheaper iPhone getting stronger by the day, with some suggesting that Apple might even start production next month, Avago might see its addressable market increase if a budget iPhone is indeed launched.
In addition, we shouldn’t discount the prospects from the company’s Samsung account, and sales of the Galaxy S4 to be precise. Samsung’s latest flagship is the fastest selling Android phone ever and, if analysts are to be believed, might hit 80 million in sales this year. Thus, the production ramp up at Apple and the strength of the Galaxy S4 should continue to be tailwinds for Avago Technologies Ltd (NASDAQ:AVGO) going forward.