Broadcom A Rising Star: 2 ETFs to Pick - ETF News And Commentary


One of the leading chipmakers Broadcom Corp ( BRCM ) has been an emerging star in the semiconductor space. The stock has seen smooth trading over the past month gaining about 18%, and has clearly outstripped its major rivals. Intel ( INTC ) and Taiwan Semiconductor ( TSM ) gained nearly 10% while Texas Instruments ( TXN ) added 4.2% in the same period (read: Market Beating Sector ETFs of 2014's First Half ).

Shares of this semiconductor firm, which is among the top 10 in the industry, surged about 28% since the start of this year. The Broadcom stock became one of the hottest in the sector and a great pick among value investors. Broadcom holds the No. 2 position in the U.S. fabless semiconductor industry, trailing Qualcomm ( QCOM ).

Inside the Surge

The strong performance was mostly attributable to encouraging industry fundamentals and strong optimism raised by the brokerage firms about the company's growth. This is especially true as semiconductor sales are increasing globally and this trend is likely to continue for the rest of the year. As per the Semiconductor Industry Association (SIA), global industry sales would grow 6.5% this year , before falling 3.3% in 2014 and 4.3% in 2016.

Apart from solid industry data, the growth levels for BRCM are impressive. The company has seen rising earnings estimates for the recently concluded second quarter and the current year with about 70% of the analysts revised their estimates upward over the past 60 days. The consensus estimate for the second quarter has risen from 40 cents per share to 42 cents per share while the current year estimates climbed from $1.76 per share to $1.86 per share. This indicates the company's incredible potential to grow in the coming months.

Further, Broadcom currently has a top Zacks Rank #1 (Strong Buy) and its industry has a solid Zacks Industry Rank in the top 34%, underscoring the company's solid position for both the short and long term (read: A Comprehensive Guide to Semiconductor Industry ETFs ).

The bullishness is further supported by the company's move last month when it announced its intention to exit the cost-intensive cellular baseband business through a possible sale or wind down of the unit. This could save about $700 million annually in research, development and other costs. The decision came as a huge boost to the company's future growth story as this unit has weighed on the company's overall margins over the past two years.

By exiting this business, Broadcom could focus more on the competitiveness in the broadband, infrastructure and connectivity businesses. Additionally, the company is expanding in the booming wearable technology market and Internet-of-Things space, which is considered the next big growth driver in the semiconductor industry.

Given the promising growth and outlook, the ETFs having largest allocation to this semiconductor company could be great picks for investors seeking to invest in this growing space but with a diversified exposure to the industry. Below, we have highlighted two such ETFs that will likely continue its outperformance in the coming months given their Zacks Rank of 2 or 'Buy' rating (see: all the Technology ETFs here ).

iShares PHLX Semiconductor ETF ( SOXX )

This ETF follows the PHLX Semiconductor Sector Index providing exposure to 31 firms. Of these, Broadcom takes the sixth spot in the basket with 4.4% allocation. The fund has amassed $464.2 million in its asset base while trades in volume of about 160,000 shares per day. Expense ratio came in at 0.47%. The fund has added over 22% so far this year (read: Leveraged ETF Roundup: Russia, India & Semiconductor Lead ).

Market Vectors Semiconductor ETF ( SMH )

This is easily the most popular and liquid ETF in the semiconductor space with AUM of $437.4 million and average daily volume of more than 1.5 million shares. The fund provides exposure to 26 securities by tracking the Market Vectors US Listed Semiconductor 25 Index. Broadcom occupies the sixth position with 4.5% of assets.

While U.S. firms dominate the fund's holdings at 74.7% of assets, Taiwan (12.8%), the Netherlands (8.2%) and United Kingdom (4.5%) round off to the next three spots in terms of country exposure. The fund charges 35 bps in annual fees. The ETF has added about 20% in the year-to-date time frame.

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BROADCOM CORP-A (BRCM): Free Stock Analysis Report

ISHARS-PHLX SEM (SOXX): ETF Research Reports

MKT VEC-SEMICON (SMH): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: BRCM , SOXX , SMH

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