Critical Analysis: Broadcom (NASDAQ:AVGO) and Applied Materials (NASDAQ:AMAT)

Broadcom (NASDAQ:AVGO) and Applied Materials (NASDAQ:AMAT) are both large-cap computer and technology companies, but which is the better stock? We will compare the two businesses based on the strength of their profitability, earnings, analyst recommendations, dividends, risk, institutional ownership and valuation.

Risk & Volatility

Broadcom has a beta of 1.41, meaning that its share price is 41% more volatile than the S&P 500. Comparatively, Applied Materials has a beta of 1.67, meaning that its share price is 67% more volatile than the S&P 500.

Insider & Institutional Ownership

76.4% of Broadcom shares are held by institutional investors. Comparatively, 80.6% of Applied Materials shares are held by institutional investors. 1.9% of Broadcom shares are held by company insiders. Comparatively, 0.3% of Applied Materials shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Broadcom and Applied Materials”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Broadcom	$63.89 billion	31.05	$23.13 billion	$5.12	81.82
Applied Materials	$28.37 billion	14.05	$7.00 billion	$10.65	47.14

Broadcom has higher revenue and earnings than Applied Materials. Applied Materials is trading at a lower price-to-earnings ratio than Broadcom, indicating that it is currently the more affordable of the two stocks.

Dividends

Broadcom pays an annual dividend of $2.60 per share and has a dividend yield of 0.6%. Applied Materials pays an annual dividend of $2.12 per share and has a dividend yield of 0.4%. Broadcom pays out 50.8% of its earnings in the form of a dividend. Applied Materials pays out 19.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Broadcom has increased its dividend for 15 consecutive years and Applied Materials has increased its dividend for 8 consecutive years. Broadcom is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Broadcom and Applied Materials’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Broadcom	38.85%	42.88%	19.84%
Applied Materials	29.31%	36.97%	21.30%

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Broadcom and Applied Materials, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Broadcom	0	4	28	1	2.91
Applied Materials	0	8	27	0	2.77

Broadcom currently has a consensus price target of $490.13, suggesting a potential upside of 17.00%. Applied Materials has a consensus price target of $470.13, suggesting a potential downside of 6.35%. Given Broadcom’s stronger consensus rating and higher probable upside, equities research analysts clearly believe Broadcom is more favorable than Applied Materials.

Summary

Broadcom beats Applied Materials on 13 of the 18 factors compared between the two stocks.

About Broadcom

Broadcom Inc. designs, develops, and supplies various semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor based devices and analog III-V based products worldwide. The company operates in two segments, Semiconductor Solutions and Infrastructure Software. It provides set-top box system-on-chips (SoCs); cable, digital subscriber line, and passive optical networking central office/consumer premise equipment SoCs; wireless local area network access point SoCs; Ethernet switching and routing custom silicon solutions; serializer/deserializer application specific integrated circuits; optical and copper, and physical layer devices; and fiber optic components and RF semiconductor devices. The company also offers RF front end modules and filter; Wi-Fi, Bluetooth, and global positioning system/global navigation satellite system SoCs; custom touch controllers; inductive charging; attached small computer system interface, and redundant array of independent disks controllers and adapters; peripheral component interconnect express; fiber channel host bus adapters; read channel based SoCs; custom flash controllers; preamplifiers; optocouplers, industrial fiber optics, and motion control encoders and subsystems; light emitting diode, ethernet PHYs, switch ICs, and camera microcontrollers. Its products are used in various applications, including enterprise and data center networking, home connectivity, set-top boxes, broadband access, telecommunication equipment, smartphones and base stations, data center servers and storage systems, factory automation, power generation and alternative energy systems, and electronic displays. Broadcom Inc. was founded in 1961 and is headquartered in Palo Alto, California.

About Applied Materials

Applied Materials, Inc. engages in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells various manufacturing equipment that is used to fabricate semiconductor chips or integrated circuits. This segment also offers various technologies, including epitaxy, ion implantation, oxidation/nitridation, rapid thermal processing, physical vapor deposition, chemical vapor deposition, chemical mechanical planarization, electrochemical deposition, atomic layer deposition, etching, and selective deposition and removal, as well as metrology and inspection tools. The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity comprising spares, upgrades, services, remanufactured earlier generation equipment, and factory automation software for semiconductor, display, and other products. The Display and Adjacent Markets segment offers products for manufacturing liquid crystal displays; organic light-emitting diodes; and other display technologies for TVs, monitors, laptops, personal computers, electronic tablets, smart phones, and other consumer-oriented devices. It operates in the United States, China, Korea, Taiwan, Japan, Southeast Asia, and Europe. The company was incorporated in 1967 and is headquartered in Santa Clara, California.