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Why You Need to Buy These Nasdaq Stocks: Alphabet, Broadcom, Skyworks Solutions, and NXP Semiconductors

Most stocks in the Nasdaq saw strong performance last year driven by the stay at home trend. As the vaccine rollout continues, not all tech stocks will be able to repeat that success. There are a few with strong business models and high growth potential that should continue to soar this year such as Alphabet (GOOGL), Broadcom (AVGO), Skyworks Solutions (SWKS), and NXP Semiconductors (NXPI).

Out of the three major indexes, the Nasdaq Composite Index shined brighter than the rest in 2020. The index gained 43.6%, compared to 16.3% and 7.2% gains for the S&P 500 and Dow Jones Industrial Average, respectively. While many market analysts have noted a rotation into cyclical stocks as the year ended and into this year, that doesn't mean the tech rally is over.

The Nasdaq composite has reached new highs multiple times this year so far. While some companies in the index will fail to repeat their 2020 success, a few could see their fortunes considerably rise this year. That's why I suggest investors avoid a Nasdaq index fund or ETF and focus on some of the best stocks that the index has to offer. I even like to filter the index and only focus on the Nasdaq 100.

The Nasdaq 100 index comprises the 100 largest non-financial companies listed on the Nasdaq stock market. The list is essentially a who's who of large-cap tech stocks. The Invesco QQQ ETF (QQQ), which tracks the Nasdaq 100, was up even higher than the Nasdaq Composite index last year, as it gained 48.4%. Out of this list, I am focusing on four companies that I believe have healthy fundamentals, strong potential for future growth based on their business models, and are trading at reasonable multiples based on their forward P/E.

That's why I am highlighting Alphabet Inc. (GOOGL), Broadcom Inc. (AVGO), Skyworks Solutions, Inc. (SWKS), and NXP Semiconductors N.V. (NXPI).

Alphabet Inc. (GOOGL)

GOOGL had a relatively quiet year in comparison to other stocks in the Nasdaq. The stock was up only 30.9%, but the company has generated positive returns for 15 out of 16 years. I believe that will continue into 2021. The company, which is well known for its search engine and ads business, has recently gained due to its strengthening cloud unit. GOOGL is expanding its data centers to increase its presence in the cloud space.

As many companies were forced to have their employees work from home, the need for cloud services exploded, and GOOGL was one of the primary beneficiaries. The company's cloud business saw 44.8% year over year growth in its most recent quarter. Total earnings were up 62.1% year over year, and revenue increased by 20.3%. The company recently acquired Fitbit, strengthening its focus on wearables.

GOOGL is considered to have a monopoly in online search and advertising. The company is regarded as a "Gatekeeper" of the internet due to its dominant market share in search, bolstered by being the default search provider for many browsers. GOOGL can grab more market share by requiring phones that use its Android operating system to use Google as the default search provider. Its strong focus on AI and the home automation space should aid growth over the long term.

The stock is rated a "Strong Buy" in our POWR Ratings system. It holds a grade of "A" in Trade Grade and Buy & Hold Grade, and a grade of "B" for Peer Grade and Industry Rank. Those are the four components that make up the POWR Ratings. GOOGL is also the #2 ranked stock in the Internet industry.

Broadcom Inc. (AVGO)

AVGO is the combined entity of Broadcom and Avago. The company boasts a highly diverse product portfolio across an array of end markets. However, it is focused primarily on radio frequency filters and amplifiers used in high-end smartphones, such as the Apple iPhone and Samsung Galaxy devices, in addition to an assortment of solutions for wired infrastructure, enterprise storage, and industrial end markets.

The stock gained 44.9% last year. It has a chance to repeat those gains as it is poised to benefit from strength across its semiconductor solutions and infrastructure software verticals. The company should also gain from increased adoption of the Wi-Fi 6 in access gateway and cable DOCSIS 3.1 products and an increase in radio frequency content.

AVGO is also benefiting from content gains as customers shift to 5G devices. It's increasing shift to its higher-margin infrastructure software business should aid future growth as the revenue is recurring and offers diversity to its semiconductors. Its stock is also reasonably priced for a tech stock, with a forward P/E of only 16.98.

AVGO is rated a "Strong Buy" in our POWR Ratings system. It holds a grade of "A" in Trade Grade, Buy & Hold Grade, and Industry Rank. It is also the #3 ranked stock in the Semiconductor & Wireless Chip industry.

Skyworks Solutions, Inc. (SWKS)

SWKS produces semiconductors for wireless handsets and other devices that are used to enable wireless connectivity. Its main products include power amplifiers, filters, switches, and integrated front-end modules that support wireless transmissions. Its customers are mostly large smartphone manufacturers, but some also manufacture wireless routers, medical devices, and automobiles.

The stock had a strong year in 2020, up 28.4%, and I see no reason this year should be any different. SWKS is poised to benefit from increased 5G deployment and rising demand for 5G handsets. Its chips were used by companies such as Samsung, VIVO, and Xiaomi. The company's products are also being used for remote work, online learning, and video streaming due to the pandemic's stay-at-home protocols.

SWKS reported strong results from its latest earnings release. Earnings rose 21.7% year over year and revenue by 13.6%. The company also provided strong guidance for the first quarter of fiscal 2021. Analysts expect earnings to grow by 26.1%. SWKS has a strong balance sheet with a current ratio of 5.2 and is highly profitable, with a net margin of 24.3%. Its stock is trading at a reasonable valuation with a forward P/E of 21.88.

The stock is rated a "Strong Buy" in our POWR Ratings system. It holds a grade of "A" in Trade Grade, Buy & Hold Grade, and Industry Rank. It is also the #17 ranked stock in the Semiconductor & Wireless Chip industry.

NXP Semiconductors N.V. (NXPI)

NXPI is a leading supplier of high-performance mixed-signal products. The company has a significant market share in the automotive market, where it supplies microcontrollers and analog chips into automotive clusters, powertrains, infotainment systems, and radars. NXPI also serves industrial and Internet of Things (IoT), mobile, and communications infrastructure.

The stock has performed exceptionally well over the past nine months, as it's up a whopping 181.3% since March 18th. This is due to a strong rebound in demand across all of its end markets. Its automotive business accounts for nearly half the company's revenues. NXPI has been investing in automotive as electronic content in automobiles is on the rise.  

NXPI also sees growth in the industrial and IoT businesses due to the replacement of traditional mechanical equipment by smart and connected electronic equipment. In its communications business, the company should see additional revenue due to rising 5G network deployments. Analysts expect earnings to grow by 33.5% this year.

The stock is rated a "Strong Buy" in our POWR Ratings system. It holds a grade of "A" in Trade Grade, Buy & Hold Grade, Industry Rank, and a "B" in Peer Grade. It is also the #12 ranked stock in the Semiconductor & Wireless Chip industry.

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GOOGL shares . Year-to-date, GOOGL has declined -1.24%, versus a 1.22% rise in the benchmark S&P 500 index during the same period.



About the Author: David Cohne

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.

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