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Is Broadcom Inc. (AVGO) a Top Pick for Investors Eyeing AI and Software Market Gains?

We recently published a list of 10 Best Stocks For Beginners With Little Money. In this article, we are going to take a look at where Broadcom Inc. (NASDAQ:AVGO) stands against the other stocks for beginners with little money.

“In my view, for most people, the best thing to do is own the S&P 500 index fund,” believes Warren Buffett of Berkshire Hathaway, who is the most successful investor not only in our time but also in human history. Buffett made the remarks at his investment firm Berkshire Hathaway’s 2020 Annual Meeting, but it wasn’t the first time he shared similar thoughts. While most investment advisors and internet stock analysts are likely to boast about ‘chasing the alpha,’ for the Oracle of Omaha, who is currently worth $144.5 billion excluding his charitable donations over the years, most people are better off tracking the S&P.

Buffett has, in fact, held this opinion for years. Speaking to CNBC in 2017, he reiterated that “consistently” buying an index fund linked to the flagship S&P index is “the thing that makes the most sense practically all of the time.” Buffett added that an investor should persist even during the bad times, when the “temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something.” Do not give in, says the Oracle, and “just keep buying” since “American business is going to do fine over time, so you know the investment universe is going to do very well.”

Yet, there’s another temptation that especially beginners to the stock market have to face. This is the rush to ‘alpha’ and by extension, wealth and riches. But according to Buffett, the “trick is not to pick the right company, the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low cost way,” since “you do not want to ever get the impression that you can pick stocks.” This false belief carries the risk of making a beginner believe that they have an edge over others, while the reality “just doesn’t work that way,” believes Buffett.

However, just because you’re a beginner with little money, doesn’t mean you can’t make it big. Wall Street, despite its flaws, has also produced titans of the investing world who started out with little to nothing. One of the best examples of this fact is Ken Fisher of Fisher Investments. Fisher’s childhood didn’t make him a stranger to Wall Street as his father Philip Fisher is one of the most consequential figures in Wall Street’s history. Fisher Sr. was the original Cathie Wood who popularized growth investing and sought to invest through a strategy called “scuttlebutt investing.”

Fisher Sr. covered this strategy in his seminal work Common Stocks and Uncommon Profits (“one of the great books on investing,” as per Buffett) and shared that an investor should conduct in depth research for a firm by getting to know its executives and employees. While Fisher’s father is a Wall Street legend, Ken started out his firm with just $250 in 1979. As of Q2 2024, the firm had $229 billion in investments as indicated through its SEC filings while Fisher’s net worth is $11.2 billion.

While today’s $250 is far from being similar in value to $250 when Fisher started his investing journey, technology enables today’s beginner investors to invest with even less money. One way to do so, if you’re feeling bold enough to ignore Buffett’s advice against stock picking, is to use fractional shares. Through these, a wide variety of brokerages enable beginners on the stock market to invest in stocks through as little as $1 and any dollar amount via features such as cash quantity stock orders. Fractional investing also enables some of the smallest investors to gain exposure to big ticket stocks, including Berkshire, whose Class B shares have a recent closing share price of $689,287.

Finally, before we get to our list of the best stocks to buy for beginners with little money, another way for a beginner to start out with little money and grow portfolio value over time comes through dividend stocks. These stocks offer beginner investors stable and often regular payouts over the long term. While everyone likes stable income, the true magic of these stocks is the ability to reinvest these dividends to generate even more returns. The benefits of reinvesting dividends are clear when we look at the data. This shows that a $1,000 investment in the benchmark S&P index would be worth $33,500 in 2022 without dividend reinvestment. But if the dividends were reinvestment, the final value nearly triple and would be worth $93,000.

With these details in mind, let’s take a look at some of the best stocks to buy for beginners with little money. If you want to learn about a special stock that might be able to deliver 100x returns, check out our report about the cheapest AI stock.

Our Methodology

To make our list of the best stocks to buy for beginners with little money, we first made a list of 20 stocks recommended by the financial media. Then, these were ranked by the number of hedge funds that had bought the shares in Q2 2024 and the stocks with the highest number of hedge fund investors were selected.

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 In Q2 2024: 130

Broadcom Inc. (NASDAQ:AVGO) is one of the most diversified technology companies in the world. It has direct exposure to the massive consumer electronics market through its modems, radios, and other products that are used in smartphones. Additionally, 44% of Broadcom Inc. (NASDAQ:AVGO)’s Q3 2024 revenue, or $5.7 billion out of $13 billion came from its software business that primarily sells cybersecurity through a SaaS business model to enterprise customers. SaaS is a growth focused and recurring revenue industry with low margins, and it helps Broadcom Inc. (NASDAQ:AVGO) to ensure predictable future revenues and exposure to high growth industries such as artificial intelligence. High growth was the theme for the firm’s software business in Q3, as revenue grew by 200% as it reaped the benefits from its VMware acquisition. Additionally, Broadcom Inc. (NASDAQ:AVGO)s sizeable chip design experience could create more tailwinds if it can win AI computing chip design orders, especially since rumors believe that OpenAI is working with it to develop alternatives to NVIDIA products. Yet, these tailwinds can evaporate just as soon as they materialize, as was evident in September when shares tanked by 10% after its $1 billion AI sales guidance boost did not beat market estimates.

Broadcom Inc. (NASDAQ:AVGO)’s management shared key details for this guidance during the Q3 2024 earnings call:

“Well, our number in third quarter is pretty much in line what we expect AI revenue to be. And our revenue in Q4 was — forecast for Q4 is what’s giving us the basis to a large extent to step up our guidance for AI revenue for the full year to over $12 billion. So if nothing else, that continues to indicate, I hope to us, that next year the trend will continue to be strong. And again, it’s all largely hyperscalers, cloud, and digital natives. And it’s again, a mix of AI accelerators and networking. And it’s also largely based on backlog we have in place for that. Beyond that — and it shows the growth. Beyond that, no, we’re not guiding you beyond the backlog we have. So I kind of answer your question indirectly on, do I have any more customers? We shall see.”

Overall AVGO ranks 2nd on our list of the top stocks for beginners on a budget. While we acknowledge the potential of AVGO as an investment, our conviction lies in the belief that some 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.

 

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

 

Disclosure: None. This article is originally published at Insider Monkey.