Is Apple Derivative Play Broadcom on Sale?
One of the popular strategies for short-term traders and active investors alike looking to ride the coattails of Apple (NASDAQ: AAPL) has been to try and trade or invest in so-called “Apple derivative” stocks. These are the stocks of companies that make component parts for top-selling Apple products like the iPhone and iPod. Among these Apple derivative stocks, one of the more interesting heading into trading on Tuesday is semicondctor maker, Broadcom (NASDAQ: BRCM), which is scheduled to report quarterly earnings that day.
Since slipping into bear market territory in April 2011, shares of Broadcom have twice tried not just to climb back into bull market territory, but to stay there.
The first time was in mid-October. Then, the stock rallied for seven out of nine trading days to break out above a months-long trading range just below the 200-day moving average. But within days, shares of BRCM had lost ground and, soon afterward, the stock was hurtling toward new, 52-week lows. Two months after rallying above its 200-day moving average, shares of BRCM had lost more than 25%.
And it is the rally from those lows in mid-December that has Broadcom once again testing its ability to become a bull market stock. BRCM crossed above its 200-day as part of a four-day rally just one-month after making those 52-week lows. Just to provide one sense of the strength of the rally, know that Broadcom only closed below its 5-day moving average twice in January, as short-covering traders drove the price higher almost every day to start 2012.
But now with the stock beginning to sell off, the question in most traders’ minds is whether or not the stock will be able to hold its gains, or if another round of selling will again send the stock significantly lower.
Over the next few months, the answer is anyone’s guess. But in the short-term, the likelihood is that the stock will move higher rather than lower, based on its proximity to technically oversold territory and its most recent, two-point ratings upgrade from a neutral, 6 out of 10 to a “consider buying” 8 out of 10. The pullback in BRCM already has given the stock a short-term positive edge of nearly 1%, suggesting that any additional selling in the stock could attract the attention of traders who have been looking to pick up shares of Apple derivative stocks like Broadcom on weakness.
Other Apple derivative plays include stocks like Taiwan Semiconductor (NASDAQ: TSM), which is in some ways a second derivative insofar as Taiwan Semi makes products for Broadcom. Another potential derivative play is Qualcomm (NASDAQ: QCOM), which also provides parts for Apple’s iPhones.
Shares of TSM have closed lower for two days in a row heading into trading on Tuesday, and are trading in neutral territory. QCOM rallied by more than 1% in Monday’s trading after a modest, two-day sell-off.
Want more stocks? Read our latest from 7 Stocks You Need to Know: Trading a Double Shot of Peet’s Coffee and Tea.
David Penn is Editor in Chief of TradingMarkets.com.