We recently compiled a list of the 10 Best American Stocks To Buy For Foreign Investors. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other American stocks.
With August Ending, What Can We Expect From US Markets?
Historically, September is considered to be the worst month for stocks. The S&P 500 index has generally averaged a decline in the month of September for decades, which has resulted in many financial news reporters, such as the Wall Street Journal, dubbing September as a weak month for US stocks. So with August coming to an end, many investors in the US and abroad may be wondering whether now is a good time to pick up US stocks for their portfolios.
While history can often be an accurate indicator of stock performance, this is not always the case. This year may very well be an outlier in the historical trend outlined above, seeing as many financial analysts are expecting the US Federal Reserve to move ahead with a rate cut this September. CNBC’s “Power Lunch” on August 21 highlighted that according to the Fed’s recent meeting minutes, it is quite probable that we will be seeing a rate cut this September, which will probably result in stock prices rising and the markets performing better. This is because when a rate cut is announced, consumers and businesses tend to increase their spending and investment, which has a direct and positive impact on stock prices, causing them to rise. As such, if we do see a rate cut next month, investors may actually benefit from investing in American stocks.
How Would a Potential Rate Cut Impact The Markets?
On August 22, Tom Lee, Fundstrat Global Advisors Managing Partner, joined CNBC’s “Squawk Box” to discuss the status of the US markets at present. Here’s what he had to say:
“The FMOC minutes that came out yesterday showed the Fed staff saying this is a strong labor market, while that jobs report that came out Friday and the revisions that just came out show a lot of jobs disappearing. It’s not a stronger market, and I think it gives more ammunition for the Fed to start a cutting cycle, and that’s gonna give a lot of life to the economy and to the markets. Especially cyclical stocks and small-cap stocks.”
According to Lee, investors looking to buy into US equities right now would benefit greatly from a rate cut if it does come about in September. A major beneficiary of such a cut would actually be the tech sector. In this regard, Lee said the following:
“I think tech is still in a good place because of AI, and NVIDIA should reinforce that. It’s not a demanding multiple, maybe 28x forward earnings, which is, for the best, one of the most important companies in the world, not a high multiple. So, if tech is in a good place, and then we get fed cuts, I think it allows the whole overall market to expand.”
Considering the above, US markets may actually be a good place to invest for foreign investors at present, and within these markets, tech may be a good place to start. This is why we’ve compiled a list of the best American stocks to buy for foreign investors, comprising most tech companies. Our list includes some of the best American tech stocks to buy, alongside some of the top US stocks for foreigners.
Our Methodology
We selected the most popular American stocks among major hedge funds to compile our list, by using Insider Monkey’s hedge fund data for the second quarter of 2024. These companies are considered to be the best US stocks to invest in today according to major institutional investors, and should thus be considered by foreign investors looking to buy into American equities.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A technician working at a magnified microscope, developing a new integrated circuit.
Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) is a semiconductor company based in Palo Alto, California. The company is among the most popular American stocks in the market right now, probably because of its heavy reliance on AI-driven revenue. So it’s not surprising that AI is one of its major growth drivers.
We believe that Broadcom Inc. (NASDAQ:AVGO) would be a smart stock pick for foreign investors because it’s set for immense growth in light of its AI semiconductors and the acquisition of a software business, VMware. These two factors helped the company grow its earnings in the second quarter, with revenue rising 43% year-over-year. Broadcom Inc. (NASDAQ:AVGO) also increased its outlook for AI-related revenue after the second quarter, primarily relying on its strength in hyper-scale custom compute and networking chips, where the company is dominating in the market.
Some of the most reputable clients for Broadcom Inc. (NASDAQ:AVGO) include Google and Meta, both big tech names with a lot to offer. Broadcom Inc. (NASDAQ:AVGO) is responsible for designing custom accelerators for these companies. Investors like this stock because of its incredible involvement and contribution to the AI space, seeing as this area of tech is driving up growth for all its major players.
There were 130 hedge funds long Broadcom Inc. (NASDAQ:AVGO) in the second quarter of 2024, with a total stake value of over $20 billion. GQG Partners was the largest shareholder in Broadcom Inc. (NASDAQ:AVGO) at the end of the second quarter, holding 32,349,800 shares in the company.
Baron Funds said the following about Broadcom Inc. (NASDAQ:AVGO) in its second-quarter 2024 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. The stock rose during the quarter as it reported strong earnings on the back of its two key growth drivers, AI semiconductors and its acquired VMware software business. The company once again increased its outlook for AI-related revenue, now expecting $11 billion or more this year (versus prior guidance for $10 billion), on the back of strength in both hyperscale custom compute and networking chips, where Broadcom maintains dominating share. In networking, Broadcom’s solutions are critical to enabling AI training factories to scale towards 100,000 chip clusters in the near term and 1 million chip clusters over the coming years. In AI custom compute, Broadcom designs custom accelerators for large consumer- internet AI companies (such as Google and Meta), who are building increasingly large AI clusters to drive improvements in user engagement and targeted advertising on their consumer media platforms. VMware remains on track to continue rapid sequential growth while simultaneously reducing operating expenses, driving faster-than-expected margin expansion and accretion, as management has simplified the product offering and is converting customers from a license model to subscriptions. We believe VMware will grow beyond the $4 billion near-term quarterly target, well above current analyst expectations. These two factors combined have caused a re-rating to the growth profile for the overall company. To quote CEO Hock Tan, “there is only one Broadcom. Period.”
Overall AVGO ranks 10th on our list of the best American stocks to buy for foreign investors. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AVGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.