Can these 3 semiconductor stocks maintain their strong growth momentum?
Silicon chips are indispensable for our modern digital world. You can find them in everything from your PC to your smartphone, your car to your coffee maker – even the pedestrian lights at the crosswalk are controlled by semiconductor chips, which gives chipmakers the advantage of having their own customer base. Evercore ISI’s 5-star analyst CJ Muse explains his view of the outlook for chip stocks on this basis, writing: “In every industry, the industry is increasingly focused on digitization combined with product cycles, including 5G, AI / ML , a broad-based auto / industrial recovery and expected continued strength in PCs and networks … our base case is that FY 21 semi-revenues will grow 14% to $ 500 billion. “This is not the only positive point, as Muse goes on:” Add the potential for momentum, combined with very lean inventory levels and likely supply shortages, and we believe the risk to growth is higher and that we may finally get one in this cycle See cycle (which means an upcycle of 6-8 quarters). “Wall Street’s top analysts agree that chip stocks have a bright future, and Muse’s Street colleagues have been busy picking the stocks they see as winners for the year ahead. Using the TipRanks database, we identified three such stocks that have received mostly positive reviews from the streets, enough to generate analyst consensus of “strong buy”. Silicon Motion Technology (SIMO) The first semiconductor name we look at is Silicon Motion Technology. The company’s main products are NAND flash memory circuits for solid state storage devices. SIMO also produces chips for flash cards and USB drives. Recent equity gains show the strength of this niche. In the last 3 months the SIMO share rose by 74% and is now trading just below its 52-week high. SIMO reported slightly mixed results for the fourth quarter and full year 2020 earlier this month. Compared to the previous year, the quarter recorded a 6% revenue decline to $ 143.9 million. As a result, however, sales increased by 13%. For the full year, revenue was up 17% year over year from $ 539.5 million. For the quarter, the company saw strong year-over-year growth in SSD component sales. The company ended the quarter and year with a solid cash position, reporting cash and cash equivalents of $ 369.2 million, up 5.4% year over year. In addition to the firm cash position, the company also declared its dividend for the current quarter. The dividend payable on February 26th is 35 cents per common share. This equates to an annual return of $ 1.40 and a return of 2.2%. Analyst Anthony Stoss, who covers Craig-Hallum’s stock, believes that based on current trends, SIMO is on a clear path to meet its corporate goal of $ 1 billion in revenue by 2023 . “While we are currently modeling earnings per share of slightly below US $ 8 for fiscal year 23 due to an increased tax rate, we assume that SIMO’s earnings in fiscal year 23 could exceed US $ 1 billion, which is earnings per share of $ 8 +. SIMO expects the client SSD business to double over the next three years as they gain market share to meet their 40% target. The introduction of SSDs outside of notebooks is accelerating and the next-generation PCIe solutions from SIMO are gaining in importance, “says Stoss. Margins will improve over the next few years as delivery problems decrease and SIMO may have an EPS within three years of over USD 8. “Stoss maintains its buy recommendation for SIMO. The analyst suggests that if everything goes as planned, SIMO will be SIMO. “A stock of $ 100 over the next 12 months, which equates to a return of ~ 57%. (To see Stoss’ success story, click here.) Silicon Motion offers investors a consensus rating for analysts with strong buys, based on 8 reviews, including 6 buys and 2 holds. The trading price of the stock is $ 63.43, and the average price target is $ 69.50, which corresponds to an increase of ~ 9% compared to this level. (See SIMO stock analysis on TipRanks.) ON Semiconductor (ON) From an SSD specialist we are switching to sensors. Microcontrollers and optoelectronics. ON Semiconductor manufactures the chips required for these devices solving problems for engineers in a number of industries. ON’s products are found in memory systems, interface switches, logic boards, drivers, and power management units. The company has a market capitalization of $ 17.3 billion, annual sales of more than $ 5 billion, and the stock is up 47% over the past 90 days. ON’s full-year results for the fourth quarter and 2020 showed modest year-over-year gains, but stronger sequential gains. Revenue for the fourth quarter was $ 1.45 billion, up 3% from the year-ago quarter and 10% from the third quarter. The EPS in the fourth quarter was 21 cents, 50% above the previous year’s figure. For the full year 2020, the company posted strong cash flow increases. Cash from operations increased from $ 694.7 million to $ 884.3 million, an increase of 27%. Free cash flow increased 212% from $ 160.1 million in 2019 to $ 500.1 million in 2020. In December, ON announced that Hassane El-Khoury had been strengthened as the company’s new CEO and President. This was followed by the January announcement that Thad Trent would take over the positions of Executive VP and CFO from this month. Craig Ellis, 5-star analyst at B. Riley Securities, sees the new management as positive for the company. “We are encouraged that the new management is focusing more selectively on high-margin leadership products as prioritization levers for vertical integration, R&D and channel strategies. We believe road estimates will be reset higher, but with longer-term upside potential, even if GM’s expansion initiatives seem broader and easier to implement than previously expected, ”said Ellis. To that end, Ellis ON is rating aa Buy and its target price of $ 50 shows confidence in 19% upside. (To view Ellis’ track record, click here.) A total of 19 current ratings are registered for ON Semiconductor, and no fewer than 16 are purchases. Of the remaining three, 2 are holds and 1 is a sell. This gives ON a strong buy analyst consensus rating. However, the majority think stocks will stay in the range for now, as evidenced by the current average price target of $ 42.03. It will be interesting to see if analysts downgrade their ratings or improve price targets in the months ahead. (See ON stock analysis on TipRanks) Micron Technology (MU) Micron has staked a position in the memory segment among the leading chip manufacturers. The company’s market cap rose to $ 99 billion as its shares rose 43% over the past three months. These increases are due to the company’s increased demand for data storage, flash memory, and DRAM chips. The company’s 2021 financial year got off to a good start. Revenue for the first quarter of fiscal year was $ 5.77 billion, up 12.2% year over year. The EPS increased by 65% compared to the previous year and amounted to 71 cents. In addition to strong quarterly results, Micron has presented the new memory technology in the last few quarters. These include the first 176-layer NAND chip announced in November, which promises to improve flash memory performance – and offers applications in automotive, data center and mobile applications. Last January, Micron announced the first shipment of 1-alpha DRAM chipsets. Strong sales are expected for the new chips in the coming year. The 5-star analyst Hans Mosesmann reports on this stock for Rosenblatt Securities: “The strong demand for cloud, client, car and mobile is helping to improve DRAM conditions, while a power outage and an earthquake have limited DRAM supply. An economic recovery and world trends (5G and AI) are likely to lead to stronger demand. “Unsurprisingly, Mosesmann gives MU shares a buy rating and a price target of $ 120, which is an upward trend of 36% over the next 12 months. (To see Mosesmann’s track record, click here.) In total, Micron has 22 of 24 recently published buy ratings, which provide the stock with a solid foundation for its consensus rating for a strong buy – and Wall Street’s confidence in the company and the company demonstrate camp. The shares are trading at $ 88.12, and their average price target of $ 97.64 suggests an uptrend of ~ 11% is possible in the months ahead. (See MU Stock Analysis on TipRanks.) To find great ideas for trading semiconductor stocks at attractive valuations, visit TipRanks ‘Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock insights. Disclaimer: The opinions expressed in this article are solely those of the analysts presented. The content is intended to be used for informational purposes only. It is very important that you do your own analysis before making any investment.