Back in December 2012, when shares traded at around $32, I argued why Avago was the market's best kept secret. Almost a year later, in Sept. 2013, we discussed several scenarios where the stock would trade at $45 per share. The stock closed Monday at $71.64, up 122% and 60%, respectively, from both recommendations and over 35% for the year to date.
Investors now want to know if it's time to take some money off the table. I wouldn't sell right now and I'll explain why.
There's never a wrong time to take profits but investors have to be mindful of potential catalysts that may spur the shares higher including Apple's (AAPL) highly-anticipated iPhone 6, which is due out later in the summer, according to reports.As with Qualcomm (QCOM) and Broadcom (BRCM), Avago has benefited from the use of its chips in iPhones. This time the iPhone 6 is expected to come in two models while sporting a larger screen. Demand in the U.S. for the new phone will be significant. But Avago investors should also be mindful of the impact the iPhone will have on 770 million China Mobile (CHL) customers. China has always been an important market for Avago. With the Chinese market just beginning to deploy higher-bandwidth cell service on the LTE (long-term evolution) standard, demand for Avogo's chips should increase commensurately. Last week, when the company reported second-quarter earnings results that beat estimates, management announced plans to streamline operations. Avago said it will sell its storage chip to disk-drive maker Seagate (STX). Avago acquired that business earlier this year form LSI Corporation (LSI). This deal comes as management looks to strengthen the company's roots in its bread-and-butter chip business, which I think is a great move. Lost in the announced transaction was the fact that Avago absolutely nailed its earnings report. Beating earnings is nothing new for this company.
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