Is Broadcom Inc. (AVGO) the best stock to buy according to Hosking Partners?

We recently published a list of The 15 best stocks to buy according to Hosking PartnersIn this article, we take a look at how Broadcom Inc. (NASDAQ:AVGO) compares to the other stocks with the best buy rating according to Hosking Partners.

Hosking Partners was founded in 2013 by Jeremy Hosking as an independent partnership offering a single global equity strategy. The firm appeals to investors seeking long-term returns and innovative thinking, using a capital cycle approach to investing. The firm has a diverse equity portfolio across a range of industries, including AI, shipping and financial services. Jeremy Hosking earned an MA from the University of Cambridge and then spent 26 years as a founding partner and senior portfolio manager for Marathon Asset Management, where he helped develop the capital cycle approach to investing.

In its recent blog on shipping, Hosking Partners believes that understanding cycles in different classes of shipping and global trends is critical to successful investing in the industry. Currently, shipping (including the container, dry bulk, product tanker and LNG subsectors) represents 1.25% of the portfolio. Global trade has declined as a percentage of GDP since 2010, reflecting deglobalisation accelerated by the COVID-19 pandemic and geopolitical instability due to the Russia-Ukraine war. This trend, coupled with the energy transition, is expected to constrain future supply and increase commodity price volatility, benefiting shipping as it enables cross-border trade.

In addition, shipping is a significant CO2 emitter, responsible for about 3% of global emissions. Environmental regulations aim to reduce emissions, but uncertainty about future fuel technology is discouraging investment in new vessels, resulting in tighter supply. The industry’s efficiency, measured in emissions per tonne-kilometer, remains high compared to other modes of transport. The shipping industry is at an inflection point, with significant change being driven by AI, the energy transition and ESG considerations.

Another industry Hosking Partners is talking about is copper mining. Copper is often seen as a barometer of economic health and is critical to the energy transition, including electric vehicles, power grids and wind turbines. Wall Street banks are bullish on copper prices, forecasting significant gains. Analysts at Citi believe prices could rise above $15,000 per tonne in the next two to three years if there is a strong economic recovery, while their base case forecasts a rise to $12,000 per tonne with modest demand growth by 2025 and 2026. Bank of America has also raised its 2024 copper price target to $9,321 from $8,625, citing tight mine supply and high demand due to the energy transition as key factors.

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However, some experts are cautious. Colin Hamilton of BMO Capital Markets argues that commodity markets tend to self-correct and if supply issues persist, demand could adjust, potentially leading to lower prices. Hamilton suggests that while high price targets may be temporarily achievable, demand adjustments could follow. The market could see a modest surplus due to increased mine supply, which is expected to grow by 4-4.5%. This is largely due to new greenfield and brownfield projects. Despite the short-term surplus, long-term shortages are expected as regulatory and political challenges in South America could hamper new mine development.

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Broadcom Inc. (NASDAQ:AVGO)

Value of Hosking Partners’ investment: USD 58,198,857

Share in Hosking Partners’ 13F portfolio: 2.15%

Number of hedge fund owners: 130

Broadcom Inc (NASDAQ:AVGO) recently reported a 43% year-over-year increase in revenue in the second quarter, with AI revenue increasing 280%. The company’s diverse revenue streams include enterprise, networking, storage, data center/hyperscaler, industrial, and consumer. For 2024, Broadcom has raised its revenue forecast to over $51 billion and expects growth of over 40%. A significant portion of this growth is expected to come from the software space, which will also improve margins.

BofA Securities views Broadcom Inc. (NASDAQ:AVGO) as a top technology stock that offers an attractive entry point after the recent market sell-off. TD Cowen also highlighted Broadcom as a key beneficiary of rising AI spending, noting that the company raised its full-year 2024 revenue forecast to $11 billion and there are no signs of AI demand slowing.

In its latest second-quarter results, Broadcom reported a 43% year-over-year increase in revenue, with AI-related revenue increasing 280%. The company’s revenue is spread across sectors such as enterprise, networking, storage, data centers, industrial and consumer markets. Broadcom raised its annual revenue forecast for 2024 to over $51 billion and expects growth of over 40%, driven primarily by its expanding software business, which is also boosting profit margins.

Broadcom’s Ethernet business remains robust, supported by partnerships with companies such as Arista Networks, Dell, Juniper and Super Micro. The company has also developed custom AI chips in collaboration with Google and Meta Platforms.

As a leading semiconductor company, Broadcom is heavily invested in AI, making it a smart stock choice for investors, especially due to its growth in the AI ​​semiconductor space and its acquisition of VMware. These factors contributed to the company’s strong second-quarter earnings, and Broadcom dominates the hyperscale, custom computing and networking chip market. With high-profile customers like Google and Meta, Broadcom’s exposure to the AI ​​sector is a key growth driver, making it a popular choice among investors.

Hosking Partners also holds NVIDIA shares in its portfolio with a weight of around 0.5% but a 3.5% weight in the benchmark, costing the strategy 0.9% after strong results that demonstrated its dominance in the artificial intelligence (AI) space. According to its Q2 2024 quarterly commentary, Hosking Partners said: “We own Nvidia because its combination of hardware and software (its Cuda platform) makes it likely that it will capture the lion’s share of the profit pool from parallel processing, of which generative AI is just one application.”

Aristotle Atlantic Large Cap Growth Strategy made the following comment on Broadcom Inc. (NASDAQ:AVGO) in its Investor letter Q2 2024:

Total AVGO ranks 11th on our list of the best stocks to buy according to Hosking Partners. While we recognize AVGO’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than AVGO but trades at less than 5x earnings, read our report on the cheapest AI stock.

READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.