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Technology Stocks : Broadcom (BRCM) -- Ignore unavailable to you. Want to Upgrade?

To: Stephen M. DeMoss who wrote (5025)	12/21/2000 11:16:36 PM
From: Didi	Read Replies (1) \| Respond to of 6531

Steve, yep + ~3 bucks after hours. quotes.nasdaq.com`&symbol=vtss`&symbol=pmcs`&symbol=amcc`&symbol=cnxt`&symbol=BRCM`&symbol=INTC`&symbol=ATML`&symbol=LU&selected=BRCM Tomorrow's volume might give us some indications. I've found Bollinger Bands quite useful, using 3 standard deviations. Per Lawrence McMillan, prices outside those ranges are considered extremes. Old but pertinent Jubak's article below. Good luck, Steve. di ------------------------------------------------------------------------------------------------------------- Selected highlights. moneycentral.msn.com >>>Broadcom. Analysts project that Broadcom will earn $1.40 a share in 2001. I think that’s likely to be low since the company routinely beats estimates by anywhere between 10% and 25%. So I ballpark the best-case earnings per share at $1.75. That would be 79% earnings growth over the projected 98 cents a share for 2000. Let’s say the market is willing to pay two times growth for this stock, or a P/E multiple of 158. Then the best-case price comes to $276.50 ($1.75 times 158), considerably north of Merrill Lynch’s recent target of $225 and just about $2 a share above the stock’s 52-week high of $274.75. In other words, in a year, Broadcom will have gained 113% from its price as I wrote this column of about $130 and recovered all the ground that it’s lost in the recent technology bear market. (Note: Broadcom stock closed at $111 1/8 Wednesday, Nov. 22.) What’s the downside here? Now that the stock is below major support at $150, the next support is at $118, and after that at $50 a share. It would take some pretty disappointing growth numbers to get there, but given the news out of major customer Cisco Systems (CSCO, news, msgs) and the constant uncertainty that any company doing business with Motorola (MOT, news, msgs) faces right now, disappointing growth is certainly possible. Let’s say the company misses a quarter or two in a minor way, so that earnings for the year come to just $1.30. That would knock year-over-year growth in 2001 to about 33%. At a multiple of 1.5 times growth (49.5), the numbers add up to a worst-case target price of $64 ($1.30 times 49.5). That’s a 50% decline from recent price levels. That gives the stock a reward/risk ratio of 113/50, or 2.26. ........................ I’ve built best- and worst-case scenarios for each stock. Now I’m going to go back and look at the odds that those projections can come true. The best-case price for Broadcom depends on the slowdown in communications equipment spending to ease before it does any harm to Broadcom’s sales. The company has told analysts that so far it hasn’t seen any signs of a slowdown. Can that continue? Broadcom has superb management and is a technology leader, which means that if growth slows in one of the company’s markets, customers are likely to cut orders to Broadcom’s competitors first. So it’s not completely out of the question. Still, look at the company’s customer list. Motorola, a firm that has had problems forecasting its own sales, accounted for 23% of Broadcom's revenues in the September quarter. Cisco Systems, which warned of an inventory buildup in its most recent quarter, is responsible for another 17% of sales. And that’s not all that can go wrong. The U.S. economy as a whole is slowing. Multiples are still coming down all over the technology sector. Even if Broadcom escapes unscathed from industry problems, these woes could be enough to do real damage to the stock. In fact, I’d say my confidence level in my best-case price isn’t very high, maybe somewhere around 50/50. There’s just too much that can go wrong and the market and economy are just too difficult. So let’s give the stock some wiggle-room and use more modest projections in which I’m 80% confident. Let’s count on 10% surprises rather than 25%, for example, so that earnings come in at $1.54 a share. That lowers the growth rate to 57% and the multiple to two times 57, or 114. That brings what I’d call the 80% likely upside target down to $176, and the most likely upside return to 35% in a year. How about the downside? Frankly, I don’t think that, even if Broadcom misses a quarter or two, its multiple next winter will fall to just 1.5 times the earnings growth rate. That’s just as unlikely on the downside as my upside scenario was. Broadcom, even if it missed, would remain a core technology holding. So, to get my 80% likely downside I’ll use a multiple of 66 (two times the growth rate) and earnings per share of $1.30. That gives me an 80% likely downside target of $86 and a most likely downside loss of 34%. My 80% likely reward-to-risk ratio on Broadcom is almost exactly one-to-one.<<<