Shane Obata’s Top Picks for September 2024: Broadcom, Prysmian, and Visa

Shane Obata, a seasoned portfolio manager at Middlefield Capital, has consistently demonstrated his ability to identify high-potential stocks in global and technology sectors. With September’s notorious volatility looming, Obata remains confident in the market's prospects over the medium term, focusing on three key supports: solid earnings growth, promising economic data, and anticipated monetary easing. Below, we delve into his top stock picks for this month: Broadcom, Prysmian, and Visa.

Market Outlook for September 2024

Although September is typically one of the worst months for stock markets, Obata maintains a positive outlook. Volatility may return, but the broader picture remains constructive due to several key factors. The second quarter of 2024 saw the strongest earnings growth for the S&P 500 Index in nearly three years, a trend expected to continue in the coming quarters.

Obata also highlights robust U.S. economic growth, evidenced by the 3% increase in gross domestic product (GDP) for Q2, driven by strong consumer spending. This growth, alongside expected rate cuts from the U.S. Federal Reserve starting in September, provides a solid foundation for market resilience.

Broadcom (AVGO NASD): Dominating the AI Semiconductor Space

Broadcom (AVGO) is Obata’s top pick due to its dominant position in the rapidly growing AI semiconductor market. As the second-largest player in AI chips, Broadcom holds leadership in custom semiconductors made for tech giants like Google and Meta. The company’s AI business, which includes application-specific integrated circuits (ASICs) and networking equipment, continues to boost its financial performance.

In the last quarter, Broadcom's networking segment, which includes AI solutions, posted a remarkable 200% year-over-year growth. This growth even outpaced Nvidia’s datacenter segment, which saw a 155% increase. Broadcom’s non-AI semiconductor segments, including wireless, server, and connectivity, have also begun to recover from the cyclical downturn, signaling strong overall momentum.

Obata forecasts Broadcom’s earnings per share (EPS) to reach $6.80 by 2025, with a price target of $197 based on a 29x earnings multiple. This outlook is supported by Broadcom’s leadership in AI and continued growth in both its AI and non-AI businesses.

Prysmian (PRY BIT): A Key Player in the Energy Transition

Prysmian (PRY), an Italian electrical equipment manufacturer, is another of Obata’s top picks due to its critical role in the global energy transition. Prysmian’s products, particularly its high-voltage cables, are essential for transferring electricity over long distances, making the company a key beneficiary of the ongoing push for energy security.

The company has thrived in recent years, driven by increased demand for secure energy sources, particularly in response to geopolitical tensions like the Russia-Ukraine conflict. Prysmian’s acquisition of Encore Wire for €3.9 billion enhances its U.S. presence and provides access to the country’s booming residential construction market. This acquisition, coupled with growing demand for energy infrastructure and data center buildouts, positions Prysmian well for long-term growth.

Obata projects that Prysmian will deliver €4 in EPS in 2025, with a price target of €80 at a 20x multiple. This stock remains undervalued relative to its peers in the electrical equipment industry, making it an attractive investment for those seeking exposure to the energy transition.

Visa (V NYSE): The Global Leader in Cashless Payments

Visa (V), the world’s largest card payment network, rounds out Obata’s top picks. As the world continues to shift toward cashless transactions, Visa remains a dominant player, consistently gaining market share in major markets across the globe. The company’s highly recurring revenue model and robust margins make it a strong candidate for long-term growth.

Obata dismisses concerns about U.S. credit interchange reforms, noting that any changes will primarily impact banks rather than Visa itself. Historically, banks have been able to offset regulatory changes by adjusting rewards programs and interest rates, which means Visa’s core business should remain relatively stable.

Additionally, Visa’s value-added services, such as fraud prevention and data security, are expected to contribute more than 25% of total revenue by 2026, providing a strong hedge to the company’s core payment processing business. Obata expects Visa to deliver at least $11 in EPS by 2025, with a price target of $314, based on a 28.5x earnings multiple.

Conclusion: A Constructive View Amid Volatility

Shane Obata’s top picks—Broadcom, Prysmian, and Visa—reflect his confidence in companies that are well-positioned for both short- and long-term growth. While September may bring heightened volatility, these stocks are supported by strong earnings potential, favorable economic conditions, and trends in technology and energy infrastructure. Investors should consider these stocks as key components of a growth-oriented portfolio.