Of Ballots And Broadcom

The presidential election, after nearly three weeks of delay and doubt, finally has been decided.

Or maybe not. For while Florida’s secretary of state on Sunday certified the results and awarded 25 electoral votes to Texas Gov. George W. Bush, legal battles remain as Vice President Al Gore vows to fight in court to include ballot hand-recounts.

Investors, at least through Monday morning, reacted with cautious optimism – with the emphasis on caution – as the Dow and the Nasdaq each were up about 1% by early afternoon, while internet.com’s Internet Stock Index was down less than 1%.

Until there is a concession (or swearing-in), look for the market to continue spinning its wheels, especially when it comes to Internet and tech stocks, which are still being weighed down by lingering concerns about Internet advertising revenues, possible interest-rate hikes and an endless stream of dot.com flameouts.

Which means ‘Net investors looking to jump in just as stocks begin to rebound needn’t yet rush to their brokers, online or otherwise. The rally train probably isn’t leaving the station for awhile.

Broadcom’s Big Fall

Up until early November, it was one of a handful of certifiable stars in this year’s Internet ticker constellation. And up until Nov. 16, it was one of less than 30 ‘Net stocks to trade in the black for the year.

But thanks to a dizzying plummet worthy of the most doomed e-tailer, high-speed chipmaker Broadcom today is just another Internet company whose shares have lost value in 2000.

BRCM closed Friday at $117.13, or 14% below the Dec. 31 price of $136.19. The freefall continued Monday, after a Salomon Smith Barney analyst drastically reduced his price target for Broadcom to $200 per share from $300. By early Monday afternoon, BRCM was trading at $100.69. That’s 60% below the Oct. 23 closing price of $251.75.

One of the main factors contributing to the rapid decline in value of the leading chipmaker for cable modems has been a fear among investors of lower demand for chips. Major customers such as Cisco Systems reportedly have large stockpiles of chips.

The other reason, however, is that this year’s rules finally caught up with Broadcom, which had been trading at an unreasonably high valuation. At its Oct. 23 price of $251.75, BRCM’s market capitalization was $55.9 billion and it was valued at 61x trailing 12 months’ (TTM) revenue of $916.5 million. Today Broadcom’s valuation is a more down-to-earth 24x TTM revenue. And if BRCM hits its Q4 projection of $362 million in revenue, that valuation drops to 20x, based on Monday’s stock price.

Given the company’s increasing profitability and continuing leadership in a huge market, investors could be looking at a good buy opportunity in Broadcom. Of course, as mentioned in the first item, there may be no rush.

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