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On July 21, 2024
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Broadcom Completed Its 10-for-1 Stock Split but Is Still the Largest Holding in These 2 Vanguard ETFs
The anticipated 10-for-1 split of Broadcom (NASDAQ: AVGO) has officially arrived. Investors can now buy a full share for around $171 instead of $1,710, although there are now 10 times more shares. Stock splits can affect price-weighted indexes like the Dow Jones Industrial Average but don't alter market-cap-weighted indexes like the S&P 500 or Nasdaq Composite or market-cap-weighted exchange-traded funds (ETFs). You may be wondering why a red-hot chip stock that has seen its market cap go from $200 billion to nearly $800 billion in just two years is the largest weighting in a value ETF. After all, that performance sounds more like an unstoppable growth stock than a value stock. Broadcom is an infrastructure software and solutions company with more of a picks-and-shovel model than a specialized chip designer like Nvidia. Broadcom makes chips and network hardware for a variety of end markets, like smartphone makers, internet companies, data centers, and more. It benefits from the increasing computing power needed to run artificial intelligence (AI) models, but not in the same way as a specialized solution like an Nvidia graphics processing unit. This fiscal year, Broadcom is guiding for $51 billion in revenue and $31.1 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- a 42.4% increase in its top line, compared to fiscal 2023. Traditionally, Broadcom has sported a premium (but reasonable) valuation, given its consistent growth. AVGO PE Ratio data by YCharts. The chart shows that Broadcom's current price-to-earnings ratio (P/E) is high, but earnings over the next 12 months are expected to soar and bring the P/E back down to its historical range. From that perspective, Broadcom isn't overvalued. Cyclical industries, like semiconductors, tend to have low P/E ratios during expansion periods and higher ones when earnings fall during a downturn. Broadcom has been growing earnings at a breakneck pace, but its stock price has outpaced its earnings growth, which is why the P/E ratio has increased. However, the earnings growth has been so strong that the P/E ratio is still not at a nosebleed level. In sum, Broadcom is a balance between a growth stock and a value stock. However, it's more value-orientated than high-flying chip stocks like Nvidia, so it's included in some of Vanguard's value funds and excluded from its growth funds. Comparing two of Vanguard's top value ETFs The Vanguard Value ETF and the Mega Cap Value ETF are similar but have some key differences in how they apply weightings to individual holdings. Data source: Vanguard. As you can see in the table, both funds have the same top 10 holdings, but the weightings of the largest holdings are higher in the Mega Cap Value ETF. This is in part because the Mega Cap Value ETF has 136 holdings, compared to 342 in the Value ETF. With fewer positions, the Mega Cap Value ETF concentrates on the largest companies, whereas the Value ETF spreads its allocation across more names. Both funds have 2.3% yields (paid quarterly). The Value ETF has a slightly lower expense ratio at 0.04%, compared to 0.07% for the Mega Cap Value ETF, but that's just a $3 difference for every $10,000 invested. In terms of valuation, the Value ETF has a slightly lower P/E at 18.4, compared to 19.4 for the Mega Cap ETF. This makes sense considering blue chip stocks can garner higher premiums due to their consistency and quality, relative to smaller companies. Perhaps the most interesting difference between the two funds is their size. The Value ETF has a whopping $168.5 billion in net assets, compared to just $7.6 billion in the Mega Cap Value ETF. But the latter is slightly outperforming the former, with a 19.5% total return over the last year, compared to 18.1% for the Value ETF. It's also worth mentioning that there are growth versions of both funds -- the Vanguard Growth ETF and the Vanguard Mega Cap Growth ETF. These funds' top holdings include megacap tech companies like Apple, Microsoft, and Nvidia. Both ETFs provide low-cost ways to invest in top growth stocks. A simple yet effective way to invest in quality companies The term "value stock" can sometimes be associated with dirt cheap, bargain-bin companies selling at a steep discount to their intrinsic value, book value, or historical valuations. The Vanguard Value ETF and Mega Cap Value ETF take a different approach by targeting top companies that are a good value based on their current results, track records for returning value to shareholders through dividends and buybacks, and trajectory for future earnings growth. Sure, there are some inexpensive stocks in both funds. However, the largest holdings aren't cheap in the traditional value-stock sense. Both funds are excellent choices if you're looking for quality companies and a lower valuation and higher yield than the S&P 500 -- which has a P/E ratio of 29.4 and a dividend yield of 1.3%. The funds could be a good fit for folks who already own a lot of growth stocks and are looking to put new capital to work in blue chip dividend stocks. Since so many megacap growth stocks have increased in value, a portfolio's weight in growth stocks could be significantly higher now than a year ago. Investing in a value-focused ETF is a low-cost way to rebalance a growth-orientated portfolio. The Vanguard Value ETF and Mega Cap Value ETF haven't put up returns as good as Vanguard's growth funds but still have rewarded investors handsomely with a reliable passive-income stream and solid returns. Both funds serve as excellent plug-and-play choices if you simply want broad-based exposure to the market through a value lens but don't want to incur high fees. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Broadcom wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $722,626!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Home Depot, JPMorgan Chase, Merck, Microsoft, Nvidia, Vanguard Index Funds-Vanguard Growth ETF, and Vanguard Index Funds-Vanguard Value ETF. The Motley Fool recommends Broadcom, Johnson & Johnson, and UnitedHealth Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
[2]
Broadcom Completed Its 10-for-1 Stock Split but Is Still the Largest Holding in These 2 Vanguard ETFs | The Motley Fool
These ETFs have lower price-to-earnings ratios and higher yields than the S&P 500. The anticipated 10-for-1 split of Broadcom (AVGO -1.98%) has officially arrived. Investors can now buy a full share for around $171 instead of $1,710, although there are now 10 times more shares. Stock splits can affect price-weighted indexes like the Dow Jones Industrial Average but don't alter market-cap-weighted indexes like the S&P 500 or Nasdaq Composite or market-cap-weighted exchange-traded funds (ETFs). Broadcom remains the largest holding in the Vanguard Value ETF (VTV -0.72%) and the Vanguard Mega Cap Value ETF (MGV -0.76%). Here's why both ETFs are worth buying now. You may be wondering why a red-hot chip stock that has seen its market cap go from $200 billion to nearly $800 billion in just two years is the largest weighting in a value ETF. After all, that performance sounds more like an unstoppable growth stock than a value stock. Broadcom is an infrastructure software and solutions company with more of a picks-and-shovel model than a specialized chip designer like Nvidia. Broadcom makes chips and network hardware for a variety of end markets, like smartphone makers, internet companies, data centers, and more. It benefits from the increasing computing power needed to run artificial intelligence (AI) models, but not in the same way as a specialized solution like an Nvidia graphics processing unit. This fiscal year, Broadcom is guiding for $51 billion in revenue and $31.1 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- a 42.4% increase in its top line, compared to fiscal 2023. Traditionally, Broadcom has sported a premium (but reasonable) valuation, given its consistent growth. The chart shows that Broadcom's current price-to-earnings ratio (P/E) is high, but earnings over the next 12 months are expected to soar and bring the P/E back down to its historical range. From that perspective, Broadcom isn't overvalued. Cyclical industries, like semiconductors, tend to have low P/E ratios during expansion periods and higher ones when earnings fall during a downturn. Broadcom has been growing earnings at a breakneck pace, but its stock price has outpaced its earnings growth, which is why the P/E ratio has increased. However, the earnings growth has been so strong that the P/E ratio is still not at a nosebleed level. In sum, Broadcom is a balance between a growth stock and a value stock. However, it's more value-orientated than high-flying chip stocks like Nvidia, so it's included in some of Vanguard's value funds and excluded from its growth funds. The Vanguard Value ETF and the Mega Cap Value ETF are similar but have some key differences in how they apply weightings to individual holdings. Data source: Vanguard. As you can see in the table, both funds have the same top 10 holdings, but the weightings of the largest holdings are higher in the Mega Cap Value ETF. This is in part because the Mega Cap Value ETF has 136 holdings, compared to 342 in the Value ETF. With fewer positions, the Mega Cap Value ETF concentrates on the largest companies, whereas the Value ETF spreads its allocation across more names. Both funds have 2.3% yields (paid quarterly). The Value ETF has a slightly lower expense ratio at 0.04%, compared to 0.07% for the Mega Cap Value ETF, but that's just a $3 difference for every $10,000 invested. In terms of valuation, the Value ETF has a slightly lower P/E at 18.4, compared to 19.4 for the Mega Cap ETF. This makes sense considering blue chip stocks can garner higher premiums due to their consistency and quality, relative to smaller companies. Perhaps the most interesting difference between the two funds is their size. The Value ETF has a whopping $168.5 billion in net assets, compared to just $7.6 billion in the Mega Cap Value ETF. But the latter is slightly outperforming the former, with a 19.5% total return over the last year, compared to 18.1% for the Value ETF. It's also worth mentioning that there are growth versions of both funds -- the Vanguard Growth ETF and the Vanguard Mega Cap Growth ETF. These funds' top holdings include megacap tech companies like Apple, Microsoft, and Nvidia. Both ETFs provide low-cost ways to invest in top growth stocks. The term "value stock" can sometimes be associated with dirt cheap, bargain-bin companies selling at a steep discount to their intrinsic value, book value, or historical valuations. The Vanguard Value ETF and Mega Cap Value ETF take a different approach by targeting top companies that are a good value based on their current results, track records for returning value to shareholders through dividends and buybacks, and trajectory for future earnings growth. Sure, there are some inexpensive stocks in both funds. However, the largest holdings aren't cheap in the traditional value-stock sense. Both funds are excellent choices if you're looking for quality companies and a lower valuation and higher yield than the S&P 500 -- which has a P/E ratio of 29.4 and a dividend yield of 1.3%. The funds could be a good fit for folks who already own a lot of growth stocks and are looking to put new capital to work in blue chip dividend stocks. Since so many megacap growth stocks have increased in value, a portfolio's weight in growth stocks could be significantly higher now than a year ago. Investing in a value-focused ETF is a low-cost way to rebalance a growth-orientated portfolio. The Vanguard Value ETF and Mega Cap Value ETF haven't put up returns as good as Vanguard's growth funds but still have rewarded investors handsomely with a reliable passive-income stream and solid returns. Both funds serve as excellent plug-and-play choices if you simply want broad-based exposure to the market through a value lens but don't want to incur high fees.
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Broadcom recently completed a 10:1 stock split, maintaining its position as the largest holding in two Vanguard ETFs. This move has potential implications for investors and the company's market presence.
Broadcom (NASDAQ: AVGO), a leading semiconductor and infrastructure software solutions company, has recently completed a 10:1 stock split 1. This significant move has caught the attention of investors and market analysts alike, as it potentially impacts the company's market presence and accessibility to retail investors.
Despite the stock split, Broadcom continues to maintain its position as the largest holding in two prominent Vanguard ETFs:
This sustained prominence in these ETFs underscores Broadcom's strong market position and its appeal to dividend-focused investors 1.
The stock split has several potential implications for both current and prospective investors:
Increased Accessibility: With the lower post-split price, Broadcom's shares may become more accessible to retail investors who previously found the stock too expensive 2.
Enhanced Liquidity: The increased number of outstanding shares could potentially lead to improved liquidity in the market for Broadcom stock 2.
Psychological Impact: While a stock split doesn't inherently change a company's value, it can have a positive psychological effect on investors, potentially leading to increased demand 2.
Broadcom's decision to split its stock comes at a time when the company has been showing strong performance:
Dividend Growth: The company has demonstrated consistent dividend growth, making it an attractive option for income-focused investors 1.
Market Capitalization: As of the stock split, Broadcom's market capitalization stood at an impressive $492 billion, reflecting its significant presence in the tech sector 1.
Strategic Acquisitions: Broadcom's recent acquisition of VMware for $69 billion has further solidified its position in the enterprise software market, potentially opening up new growth avenues 2.
While the stock split itself doesn't change Broadcom's fundamental value, it may signal management's confidence in the company's future prospects. Investors and analysts will be closely watching how this move affects Broadcom's stock performance and market dynamics in the coming months.
Nvidia and Broadcom, two major players in the tech industry, have recently completed 10-for-1 stock splits. While both companies are positioned in the AI market, their current outlooks and market performances show notable differences.
5 Sources
Recent stock splits by tech giants Nvidia and Amazon have caught the eye of investors. While some billionaires are selling Nvidia, others are buying into Amazon's potential in the AI market.
2 Sources
Broadcom's upcoming 10-for-1 stock split has sparked investor interest, with analysts comparing its potential to Nvidia's recent success. The move could make Broadcom shares more accessible and potentially boost its market performance.
4 Sources
A Vanguard index fund has seen an extraordinary 1500% increase over 15 years, largely due to the performance of AI-related stocks like Nvidia and recent stock splits. This growth highlights the potential of index fund investing and the impact of the AI boom on the market.
2 Sources
Broadcom's stock split and AI potential have caught investors' attention. The company's diversified portfolio and strong financials make it an attractive option in the AI market, potentially rivaling tech giants like Nvidia and Apple.
4 Sources