I won’t sugarcoat it—today was a tough day on Wall Street. The culprit was the European Central Bank (ECB), which decided to cut its deposit rate by 0.1% to -0.3%. This was a shallower cut than expected; investors were looking for a 0.15% reduction. Because many were expecting a bigger stimulus package from the ECB, they took it out on the financial markets. The euro rose to a one-month high against the dollar while the greenback fell.
The stock market wasn’t immune to these shockwaves. The Dow and S&P 500 shed 1.4%, while the tech-heavy NASDAQ did even worse, falling nearly 1.7%. In the technology sector, even bellwethers like Alphabet (GOOGL), Cisco Systems (CSCO), Microsoft (MSFT) and Yahoo (YHOO) felt the pinch.
However, within the sea of red, there was a notable exception. Avago Technologies (AVGO) wasn’t impacted at all by the general uneasiness. Instead, shares of AVGO spiked nearly 10% after the chipmaker trounced earnings expectations for the fourth quarter.
Compared with the year ago quarter, adjusted earnings jumped 33% to $737 million, or $2.51 per share. Analysts were looking for $2.38 EPS so Avago Technologies posted a healthy 5.5% earnings surprise. Over the same period, revenues rose 16% to $1.84 billion. Adjusted revenues were $1.85 billion, in line with analysts’ expectations.
Looking ahead to the current quarter, management is targeting between $1.76 billion and $1.81 billion in revenue, or between 7.3% and 10.4% annual sales growth. Meanwhile, the analyst community expects Avago’s bottom line to grow 9.1%. To put this into perspective, the industry as a whole is expected to see profits fall 7.5%.
Avago’s performance today proves that amidst general uncertainty, fundamental strength is king. I recommend AVGO as an A-rated Strong Buy.
P.S. If you’d like more information on AVGO, including my current price limit for the stock, you can access it through a risk-free trial of Blue Chip Growth.