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The Street
The Street
Todd Campbell

Single Best Trade: Portfolio manager shares favorite tech stock

There are thousands of publicly traded securities to choose from, so picking stocks deserving of your hard-earned cash can be a challenge. Knowing if it’s the right time to buy the stocks you’re interested in owning makes it even harder. To help, professional investors are sharing their single best trade idea with TheStreet.

While nobody has a crystal ball and plenty of things can derail even the best investment thesis, professional investors have years of experience and resources Main Street investors can only dream about.

In this inaugural edition of Single Best Trade, Daniel Kim, senior investment analyst and portfolio manager of the Sextant International Fund, rated 4 stars by Morningstar, explains why he’s a fan of one of the world’s largest semiconductor companies. The Sextant International Fund is managed by Saturna Capital, a West Coast-based money manager with over $7 billion in assets under management.

Kim, a Chartered Financial Analyst (CFA®) with nearly 20 years of experience managing institutional money in global funds, is a long-term growth investor, and his fund's investment style targets income-producing foreign stocks with market caps above $1 billion. 

Currently, the Sextant International Fund owns 35 stocks, and 41% of the fund’s assets are in technology stocks. Read on to learn why this is Kim's single best trade now and importantly, what could change his mind.

TheStreet

What is your single best trade idea?

Broadcom.

Why do you like it?

Broadcom is the world’s leading fabless designer and manufacturer of networking semiconductors and software. Its products represent the foundational building blocks of what is driving the digital revolution — the capture, transfer, storage, and intelligent processing of the explosion of new data that will be created in the new digital economy over the next decade.

As it pertains to AI, Broadcom can be thought of as the vessels and arteries of the digital ecosystem. You can have the fastest accelerator chips on the planet, but if you don’t have an equally blazing networking silicon that can handle it, you’re back to square one.

In addition to AI, the world is in the midst of converting the analog economy into a digital one. Every time another device becomes connected, data is created, and that data needs to be communicated and processed. Again, none of this is possible without Broadcom.

Also, it’s been clear for a few years that Moore’s Law is no longer holding up for semiconductor CPU’s (the doubling of transistors every 18-24 months). The best way to make up for this is by integrating software with hardware, or by offloading compute capacity to other chips such as networking processors — both of which Broadcom explicitly addresses.

More technology stories on TheStreet:

Broadcom is one of the cleanest and biggest beneficiaries of AI and the digital revolution, and you don’t have to pay a ridiculous multiple to own it today.

The stock trades at 19x the next twelve months’ earnings estimate and sports a 2.2% dividend. The company buys back/cancels 1-2% of its stock every year and is extremely profitable with ~75% gross and 50% net profit margins.

It will probably have at least double-digit earnings growth for the next decade.

What could go wrong?

If AI turns out to be a flash in the pan, and the economy falls into a severe recession, Broadcom will not be able to avoid getting hit, even though its business is extremely durable and has never experienced a decline in revenues throughout its history.

The other risk is that Broadcom relies fairly heavily on outsourced chip manufacturing, namely via Taiwan Semiconductor. If there is a major geopolitically induced disruption in this supply chain, Broadcom is at risk.

Lastly, if for whatever reason, Broadcom makes a series of missteps and falls behind the technological curve relative to its competition, this would be a strong reason to re-evaluate the investment thesis. 

Single Best Trade does not represent investment advice from TheStreet. All investments should be researched carefully through consultation with an investment professional.

Get exclusive access to portfolio managers and their proven investing strategies with Real Money Pro. Get started now.

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