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a few weeks ago on the channel we took a look at what stocks these politicians were buying and in particular our main focus was on Nancy Pelosi who seems to have an incredibly great rate at buying companies which tend to perform incredibly well now today's Focus we are going to take a look at broadcom it is one that she actually bought on the 24th of June this year and she did publish this on the 3rd of July as always politicians do need to disclose companies that they have been buying and it is estimated around 1 to 5 million worth of shares now with this company and in fact since she did buy as we can see just over the last 30 days this company is up 15% and interestingly we knowe That Wall Street does consider this a strong buy and Seeking Alpha gives it a buy now today's episode we want to understand is there still room to buy this company as it is about to have a stock split making it more attractive for investors who do like to buy and they can't buy fractional shares one thing to note that when the market did close on Friday a 10 for one stock split did take place therefore as the share price we see now in today's analysis is $1,700 it will open this Monday at $170 so as we go through our analysis today and we look at our evaluation bear in mind to divide this by 10 effectively your dollar amount won't change if you are a shareholder of broadcom you will have 10 shares as opposed to one and as we mentioned they will be trading from 170 so let's find out whether or not we believe this a strong buy and following the footsteps of the great investor Trader Nancy Pelosi now when we take a look at the dividend safety score it does sit at 67 it does look to be safe and as we will cover in today's episode they have an incredibly great growth rate for their dividend double digits pretty much every single year now one thing to bear in mind it was reaffirmed last month that their dividend safety score does look to be safe what this means essentially their dividend cut is is unlikely now how did they perform in the last recession for those that do see one inbound well they ultimately had pretty much the same recession sales as the S&P at around -12 as we mentioned dividend growth consistently very high year-on-year double digits and when you do zoom out over the last 10 years they have increased this dividend by 36% on average year on year and in fact they have been increasing the dividends for the last 13 years now one thing that we like to look at on this channel is dividend Theory now what it states for those that are maybe new to the channel that the company is undervalued when the current yield sits above the 5year average so in today's episode we do have an overvaluation signal the yield is much lower than the 5year rolling and the same to be said on the forward P it is much higher than the 5 year as well as sitting higher than the information technology sector now bear in mind whether this shows overvaluation undervaluation or even reasonable valuation we don't look at any of these models in isolation and we do tend to conclude towards the end as always we focus on the free cash flow payout below 50% is our preference for the industry specific of semiconductors and that is what it has been every single year over the last 10e period over the next 12 months expected to come down to 35% one of the reasons why they do continue to offer some very large increases to their dividend another thing we like about this company those free cash flows tend to increase year- on-ear a very good sign $3 in 2014 $43 in 2023 and expected to continue onto a very strong run over the next 12 months the next thing that we always like to look at is the sales growth now we will come on to this later in the episode but 3 to 7% is what we want to see for the majority of companies pretty phenomenal across the board in fact 21% in 22 8% in 2023 and when we do zoom out to look at it numerically we can see some tremendous growth over the period now one thing to know with all companies there is no company within your portfolio or that is out there in the S&P or anywhere that is completely perfect as you can see with broadcom they would have diluted your position as a shareholder over the last 10 years but as we are about to see the performance of the share price return over the last 10 years is absolutely incredible probably why you wouldn't really care about this share dilution we then move on to the roic as always a phenomenal metric to look and go through your own portfolio screen them to see if they're getting at least 10% or more give you Faith management are effectively able to allocate on their capital and what we can in fact see here above 12% for the semiconductor industry very nice over the last 2 years and even on a trailing 12mon basis that 10% is something ultimately we want to see as a minimum on top of increasing the Topline Revenue we always want to see operating margin where possible increasing as well and we notice with broadcom that operating efficiency increasing over the longer term great sign to see and again free cash flow margin this is a free cash flow machine look at that in the low 50s over the last four years absolutely phenomenal not something we see on a day-to-day basis when we do come and review company finally the net debt to EIT D the earnings before the interest tax appreciation ammortization below 1.5 is what we want to see remember as always this metric correlates to Dividend safety balance sheet strength 1.1 in 2023 which is good expected to climb over our 1.5 that we want to see at 1.85 probably why we do get a safe dividend score as opposed to ultimately the very safe but given the fact the free cash FL P does look to consistently be below 50% no worries whatsoever again just something to keep an eye on now before we continue just to let you know we've released our latest free weekly article we run through 18 undervalued dividend Kings with this article you also get a free spreadsheet running through all of the dividend Kings whether or not we see them as buys and our price targets and as always it does give you instant access to all of these other articles and we are dropping our next article tomorrow morning so continuing with this company as we mentioned just over the last month up 15% year to date very strong up 52% over the last year up 91% and again if you've been a shareholder over the longer term probably one of the best in your portfolio up over 2,000% now as we mentioned it is trading towards the upper end of the 52e range with the strong buy from Wall Street in terms of the yield as we saw 1.23% lower than the 5year average forward pce ining at 35.4 again much higher than the 5year rolling now in terms of looking at these companies numbers as we did see we want to look at both Revenue and bottom line net income over the last 10 years it has grown phenomenally and consistently as well something we always like to see here on the channel 4.3 billion in 2014 36 billion in 2023 and on a trailing 12mon basis we can see and expect the full year accounts for 2024 to be very strong as well no surprises is the prediction then when we look at the bottom line net income 263 million in 2014 14.1 billion in 2023 and whilst it does have a little bit of inconsistencies noting the net loss in 2016 we still see over the longer term it is moving in the right direction and as always it is important when they do release their earnings to look forwards towards their guidance now in terms of the health of the company as always total cash versus total debt their cash position has increased rapidly 1.6 billion in 2014 9.8 billion in their latest quarterly report and again similar to pretty much every other metric it has been increasing over the longer term it is important to understand though that these metrics in fact the cash on its own doesn't really tell us anything which is why we always combine it with their total depb which as we can see has also increased rapidly 5.5 billion in 2014 74 billion in their latest quarterly report which is why we did say something just to keep an eye on that neet debt to ebit diametric is also climbing not something I particularly like to see especially given the fact it has pretty much or in fact nearly doubled just from 2023 to the latest quarter so as always there are things with companies that we do need to take into account and we can factor that in to our margin of safety later on we then look to see how they've performed historically earnings per share as well as their forward guidance what we knowe very strong their last four quarters they have beaten so a 100% track record and over the next four quarters they are estimating double digit growth year on-ear to the earnings per share and for those that do like to zoom out 60.9 3 is their EPS estimate for October 2025 which will bring that forward Peak down to around 27.9 one so looks good historical performance as well as their estimations again it will depend on the confidence you do have in them to hit those targets we then move on to the valuation grade and underlining metrics now they do get an F no surprises here because when we do look at the p on a non-gaap basis much higher 35 versus the sector Medan of 25 in fact you are paying a premium as opposed to the sector median of 42% as always you could justify it is warranted to pay a premium the the real question is what premium does a company like broadcom deserve and we will come across that later on pretty much then the consensus here whatever metric you use to valuate the company broadc comp is trading significantly higher than the sector medium we then move on to their growth grade where they do get a B year-on-year Revenue growth again we can see now why it does trade at the premium much better at 22% versus the sector median of 3.28 pretty much expected the same growth over the next 12 months a lot better than the sector median of 7% and one of the things we always draw your attention to earnings per share over the next 3 to 5 years 177% anticipated compounded annual growth the sector as a whole 14.2 so looking pretty good on the growth aspect and when we get to the profitability well they get an A+ here incredible growth profit margin 74% versus the sector 49 incredible bottom line as well 24% when you consider the sector Medan as a hold is 3% that is an incredible sign and cash from operations that just looks ridiculous under 19 billion where the sector median 95 million so again it does make sense why this is trading at a premium and in conclusion for this part of the analysis A buy from Seeking Alpha a strong buy from Wall Street a hold from quum an F on valuation a B on growth with an A+ on profitability now how have they performed are they a very strong performer in relation to the market in relation to their competitors well we have TSM AMD qualcom some very big names every single one of these we have reviewed on the channel over the last year now bear in mind includes reinvesting dividends broadcom is actually the second best performing which does go to tell us quite a lot the industry as a whole which shouldn't be essentially news to anyone has performed very strongly up 94% TSM 83% and we see the real leader here mu up 110% we then move out and zoom to the last 5 years and we actually see broadcom by quite some distance has performed a lot better but when we look across this whole industry as a whole maybe other than Texas Instruments has performed for noraly and over the last 10 years we can see that actually broadcom whilst performing incredibly at over 2800% is in fact second to AMD which is right there at 4,641 now these are all great to look at it is historical performance and future performance isn't relevant to that but something we just like to incorporate the main question I would focus on is do you believe over the next 10 years or whatever your investment Horizon is it will outform the S&P otherwise as always lowcost ETF will be the solution ution so over the last year S&P has significantly underperformed broadcom but as always to be fair 26% just year to date is very strong Over The Last 5 Years again S&P has underperformed and over the last 10 again the same result interesting not to know your thoughts if you do believe that will continue over the next 10 years and Beyond now before we look at the valuation two parts to note firstly Insider ownership 2% with 92 Million worth of sales over the last year we see a little bit of buying in relation 10.4 4 5 million again over the same period and in all honesty there is a trend where every single quarter insiders are selling so maybe it isn't something to be surprised about and when we take a look at who these are we can in fact see the director did sell in two tranches 10th of April as well as the 20th of June as always not a bearish indicator for us insiders will sell for reasons we have no clue about whether it's personal or financial we then move on to institutional ownership just over 76% 6 billion worth of sales over the last 12 months a lot more buying over the same time period as we can see but when we do focus in quarter 2 we actually see more selling than buying the opposite to be said for the previous quarter now as always do take all of this information in your own investment thesis but just remember to always do your own due diligence never copy institutions or essentially insiders in fact don't even copy Nancy Pelosi as well always do your own due diligence now let's get into the valuation of this company our intrinsic value is $1,654 the way we got to this number when we look at the DCF model we've used three rates a low medium and high effectively we've gone for a 15% rate which is below the average growth which is very high at 48% and we can see the free cash flow year- on-year we've then used this with the discount rate to get the present value of future free cash flow and terminal value we've added with the cash subtract total debt got to the equ value divide by the shares outstanding and we can see if you do believe a medium rate is applicable right now that means implied downside of 3% now people will say that is way too conservative especially with the way AI is going semiconductors are going to be going really really high for quite some time as we have looked out on the channel around 30 to 45% compounded annual growth rate to the Top Line at least over the next 10 years again from articles from Bloomberg as well as PWC and some other big names so again for those that do see you know 15% too low 20% as we can see here 2395 would give upside of 41% again there will be people who say that is still a little bit conservative at 25% we can see in fact pretty much double so if you're someone that believes 25% will be the growth rate over the next 10 years and Beyond this company is having an intrinsic value of $3,400 as we said double the current trading price again you can grab a copy of this model by clicking on the pin comment below putting in your own numbers whatever you believe whatever your investment thesis does hold but as we said we're going to take the medium rate of 15% to the intrinsic value final calculation and we can see 1654 is what we believe with the current price at 1,700 so whilst we always like to use a margin of safety of 10% and we execute on that when it meets our three golden criteria that is a wide mode strong financial metrics and good forward-looking data you would have to wait for around $1,000 say $500 bear in mind when the Market opens it will all be divided by 10 so this will be around $150 as opposed to the 170 it will be Trading Post split again there will be people who be happy happy to buy this with a margin of safety of 5% or even at its intrinsic value but as we said we do believe it be marginally overvalued in today's market terms of Wall Street well as we can see very bullish still they have upside of 14% $1,937 And this will be around 194 as the Market opens as always though let us know your thoughts in the comments below did you buy when Nancy bought is this one you've maybe bought previously it's on the watch list or maybe you believe it is heading towards the top and you are looking to sell if you enjoyed today's episode smash that like button hit that subscribe and Bell button and we'll see you all on the next one
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