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 Gainers📈 & Losers📉

Our Biggest Gainers & Losers of the Day in the $100,000 Build Portfolio

For the 6th December 2024:

• How to Print Money 🖨️💵 

• Stock Alerts to Your Phone 🚨 

• He Knows Something You Don’t 🧠

How to Print Money 🖨️💵 

Growing revenue, fat margins & free cash flow. It’s as close to a money printer as you can get.

Broadcom (AVGO) are the one’s with the ink & running on a hot streak for earnings beats. Next report is the 12/12 after market closes.

The most recent report in September was super strong. Revenue came in at $13.1 billion, up a massive 47% YoY. Profits jumped about the same at 44% to $7.9 billion.

AI revenue exploded 3.5x & that’s before we’ve even got onto their big acquisition, VMware.

It’s already pulling its weight. Infrastructure software revenue is up 200% YoY to $5.8 billion. VMware is giving 3,000 of Broadcom’s biggest clients simpler, more robust private cloud solutions. The integration saved Broadcom $300 million in Q3 alone so it’s already paying for itself.

I know what you’re thinking. “This all sounds great but am I late to the party? Can I still make money here?”

That’s a valid question. Let’s see what the future looks like. 🔮 

So, What’s the Play Here?

Broadcom is sitting pretty, thanks to a few key moves:

1. AI Domination: Hyperscalers (think Google, Amazon, Microsoft) are gobbling up their custom chips to scale massive AI projects. Sales of Ethernet switches like the Tomahawk 5? Up 4x.

2. Smart Cost Control: By automating VMware’s operations, Broadcom’s squeezing more profit out of every dollar. That sets a perfect foundation for future earnings to keep outperforming.

3. Diverse Revenue Streams: Let’s not beat around the bush. AI is the star of the show. But non-AI networking revenue is stabilizing, up 17% sequentially in Q3. Broadcom even expects wireless revenues to grow 20% sequentially in Q4 with new product launches. If they’re firing on all these cylinders you don’t need me to tell you what they means, right?…. 💰️ 

Guidance for Q4 FY2024 is just as optimistic.

• Total Revenue: $14 billion (+51% YoY).

• AI Revenue: Expected to grow another 10% sequentially. That’d bring the full-year of AI sales to $12 billion.

Even the parts of the business that looked a bit old & scabby (like broadband and server storage) are giving us reasons to celebrate.

Given all this, I’d say Broadcom aren’t even close to running out of steam. That’s great news. The business is doing well & the future looks bright. Half the job’s done, now let’s figure out the next bit…

Is It Worth the Hype?

Let’s talk valuation. Broadcom isn’t cheap. There’s a fine line between overpaying for a meh stock & paying a premium for a great stock. I think Broadcom falls into the "“great stock” category. Here’s why:

• Growth rates are insane. This isn’t a company sitting back & hoping to grow into its valuation. They’re earning it with real numbers & outperforming quarter after quarter.

• Free cash flow? They’re printing it. In Q3, they generated $4.8 billion, 37% of sales. A chunk of that was used for share buybacks which is another bonus for investors (8.4M shares eliminated = boosted EPS).

• AI & VMware aren’t going anywhere. Can we take a moment to appreciate what a great acquisition this was? The momentum of this combo puts Broadcom in a league of its own.

Yes, there are risks. Hyperscaler spending happens in cycles. Relying on a few big hitting customers leaves you a bit vulnerable. And their debt load post-acquisition is a little hefty. In my opinion, I think the operational efficiency & cash flow generation helps to stomp out some of the fire in these risks.

My Plan 🗺️ 

Broadcom have handed me the hymn sheet & I’m singing from it.

Smashing AI, crushing cost management & consistently delivering value to shareholders. They’ve set the bar high for Q4 & odds are they’re going to clear it.

I’ve got a big red circle around 12/12/24 in my calendar. That’s when we’ll know if Broadcom keeps the winning streak alive. Either way, unless something horrendous gets reported, I’m going to keep averaging in.

First price target at $200 which is an 11% upside. My longer term view is for $240 which’d be a 33%+ gain from current price.

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He Knows Something You Don’t 🧠 

Can you think of a better signal than the man in charge using his own money to buy his own stock? Me neither.

Bernaud Arnault, the CEO of LVMH has started doing just that. Let’s put on our Dior shades & try & see what’s looking at. (Unbranded shades should be fine for this bit too)

The Avengers of Luxury Goods

Name a luxury brand you saw in your last stroll around Harrods. LVMH probably own it. Louis Vuitton, Tiffany & Co., Moët, Hennessy, Sephora, & about a zillion other brands your wallet hates but your heart loves all put money in the LVMH bank account.

It’s not just that they own the best brands, they also don’t stop buying up new ones, too. In 2023 they scooped up 7 companies & are at 2 acquisitions for 2024.

It’s like Thanos swapped infinity stones for Tiffany Diamonds & headed up the M&A department for LVMH the way they’re collecting brands.

The good news is, unlike most of what they sell…

LVMH Stock is Selling at a Discount Right Now

LVMH is trading at a P/E ratio of 22x, right now which is a way below its 5-year average of 26.9x.

And let’s talk revenue: LVMH’s 3-year growth rate is at 15.9% CAGR, with free cash flow margins of 15%+. The power of branding makes them a cash machine. As backwards as it sounds, people like to pay extra for the feeling of prestige. That means LVMH have flexibility to keep their margins fat. 💵✨

Analysts have a price target around $700 which means they think we’ve still got 10%+ to run from current price. I think that’s a super conservative figure if you account for the boom that is pending from China. They’re the biggest driver of demand in this space & their economy is a bit stagnant at the moment. Once it comes back to life, expect LVMH to surge with it.

We’re 30% off of highs. I can’t see why an Asian resurgence couldn’t see us there again.

Add in Arnault’s recent multi-million euro stock purchases & you’ve got a strong “buy” signal from the guy who knows the business better than anyone else. (When he did this in 2023 the stock gained 22% in the next few months)

So, What’s the Catch?

Like any great deal, there’s fine print. 📄

• China’s luxury slowdown: It might be a painful wait on China’s economy getting back it’s old luxury spending ways. LVMH’s growth in Asia (ex-Japan) dipped -12% over the last 9 months. Less than ideal.

• Fashion & Leather Goods struggles: This division makes up ~50% of revenue & dropped 5% YoY. It’s a sign people aren’t feeling confident & luxury goods are one of the first thing’s to go. For sensible people, anyway.

• Long-term risks: There’s some speculation around Gen Z wanting experiences over handbags. I think that’s a pretty weak concern. The luxury instagram influencer is probably just as prevalent as the travel one.

My Plan 🗺️ 

Luxury is a cyclical market. We happen to be in a down swing which is the time you want to buy. So that’s what I’m doing.

LVMH is the luxury stock to own. The moats as wide as the Seine, it’s brand portfolio, M&A skills, & global reach make me confident they’re ready for the next economic uptick when everyone’s got spare cash & wants to impress their friends.

Luxury demand is expected to grow ~6.8% annually through to 2030 & if the CEO’s buying too, I’m not going to pretend I know better than him

The 2% dividend is also pretty nice. LVMH is currently 0.8% of the portfolio & I’ll keep it around there-ish as I add more funds.

Savvy Investors Know Where to Get Their News—Do You?

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That’s all! See you same time tomorrow 👋 

P.S Hit reply & let me know what you thought of today’s newsletter. All feedback is welcomed ❤️