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Can these 3 semiconductor stocks maintain their strong growth momentum?
Silicon chips are absolutely essential for our modern digital world. You’ll find them on everything from your PC to your smartphone, your car and your coffee maker – even pedestrian crosswalk light is controlled by semiconductor chips, giving chip makers the benefit of a captive customer base. Evercore ISI 5-star analyst CJ Muse constructs his view of chip inventory prospects on that basis, writing: “With each vertical industry increasingly focused on digitization combined with product cycles, including 5G, AI / ML, a broad recovery in the automotive / industrial sector, as well as expected continued strength in PCs and a network recovery … our base case predicts that Semi’s revenues will grow 14% in 21 BC to $ 500 billion. ”This is not the only positive point, as Muse continues,“ Add stimulus potential combined with very lean inventories and probable supply constraints and we think that the risk of growth is greater and we can finally see a cycle in this cycle (meaning a 6-8 quarter growth cycle). ”There is a consensus among the best Wall Street analysts that chip stocks have a bright future, and Muse Street colleagues are busy choosing the stocks they consider to be winning next year. Using the TipRanks database, we identified three of those stocks that received overwhelmingly high praise from Street, enough to gain consensus from “strong buy” analysts. Silicon Motion Technology (SIMO) The first semiconductor name we are looking for is Silicon Motion Technology. The company’s main products are NAND flash memory circuits for solid-state storage units. SIMO also produces chips for flash cards and USB drives. Recent gains in participation show the strength of this niche; In the past 3 months, SIMO shares have risen 74% and are now trading almost below their 52-week high. SIMO reported its fourth quarter and full year 2020 results earlier this month, which were slightly mixed. Compared to the previous year, the quarter decreased by 6%, to US $ 143.9 million in revenue. Sequentially, however, revenues increased by 13%. For the full year, revenue of $ 539.5 million increased 17% year-on-year. In the quarter, the company achieved strong annual gains in sales of SSD components. The company ended the quarter – and the year – with a solid liquidity position, reporting US $ 369.2 million in cash and cash equivalents, a 5.4% gain in the annual comparison. Along with the company’s cash position, the company also declared its dividends for the current quarter. The dividend – to be paid on February 26 – is 35 cents per common share. This annualizes to $ 1.40 and gives a return of 2.2%. Covering Craig-Hallum’s stock, analyst Anthony Stoss believes that, based on current trends, SIMO is on a clear path to achieving the company’s goal of reaching $ 1 billion in sales by 2023. “Although we are currently modeling for EPS FY23 slightly below $ 8 due to the increased tax rate, we believe that SIMO’s revenues could be above $ 1 billion in FY23, generating EPS of $ 8 +. SIMO expects its customer SSD businesses to double in the next 3 years as they gain market share working toward their 40% target, SSD adoption accelerates outside of notebooks and SIMO’s next generation PCIe solutions win strength, “noted Stoss.” place over the next few years, margins should improve as supply problems ease and SIMO potentially delivering $ 8 + in EPS in 3 years, “Stoss keeps his SIMO purchase rating intact. The analyst suggests that , if everything goes as planned, SIMO will be a $ 100 share in the next 12 months, resulting in a return of ~ 57%. (To view Stoss’s history, click here) Silicon Motion presents investors with a consensus rating of strong buy analysts, based on 8 reviews including 6 purchases and 2 retentions.The stock’s trading price is $ 63.43, and the average target price is $ 69.50, implying a ~ 9% rise from of this level. (See the analysis of SIMO actions in TipRanks) ON Semiconductor (ON) From an SSD specialist, we will move on to sensors, ers microcontroller and optoelectronics. ON Semiconductor produces the necessary chips for these devices, solving problems for engineers of several sectors. ON 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 in excess of $ 5 billion, and the shares have gained 47% in the past 90 days. ON’s fourth quarter and 2020 results showed a modest gain year on year, but stronger sequential gains. Fourth quarter revenue was $ 1.45 billion, an increase of 3% over the previous year’s quarter and 10% over the third quarter. EPS in the fourth quarter of 21 cents rose 50% year on year. For the entire year 2020, the company reported strong gains in cash flow. Cash from operations increased from $ 694.7 million to $ 884.3 million, a gain of 27%. Free cash flow, which was $ 160.1 million in 2019, increased 212% to $ 500.1 million in 2020. In December, ON announced that Hassane El-Khoury has taken over as the company’s new CEO and president . This was followed by the January announcement that Thad Trent would assume the positions of executive vice president and chief financial officer starting this month. Craig Ellis, a 5-star analyst at B. Riley Securities, sees the new management as a positive factor for the company. “We are encouraged by the new management’s more selective focus on high-margin leadership products as a prioritization lever for vertical integration, R&D and channel strategies … We believe that Street estimates will be redefined higher, but with potential for long-term growth, even if GM’s expansion initiatives seem broader and more readily actionable than we previously expected, ”said Ellis. To this end, Ellis values ON aa Buy, and its target price of $ 50 indicates confidence in a 19% upside potential. (To see Ellis’ history, click here) Overall, there are 19 recent reviews recorded for ON Semiconductor, and no less than 16 of them are purchases. Of the remaining three, 2 are on hold and 1 is a sale. This gives the ON a strong buying analyst consensus rating. However, most expect shares to stay within the range for now, as indicated by the current average price of $ 42.03. It will be interesting to see if analysts downgrade their ratings or update their price targets in the coming months. (See analysis of ON shares in TipRanks) Micron technology (MU) Among the main chip manufacturers, Micron has gained a position in the memory segment. The company saw its market value expand to $ 99 billion, with a 43% appreciation of the shares in the last 3 months. These gains came as the company’s data storage, flash storage and DRAM chips saw an increase in demand. The company’s 2021 fiscal year is starting off on the right foot. The first fiscal quarter recorded net revenue of US $ 5.77 billion, an increase of 12.2% year on year. EPS gained 65% year-on-year and stood at 71 cents. Along with strong quarterly results, Micron has, in recent quarters, launched a new memory technology. This includes the first 176-layer NAND chip, announced in November, which promises an upgrade to flash memory performance – and has automotive, data center and mobile applications. Last January, Micron announced the delivery of the first volume of DRAM 1-alpha chipsets. The new chips are expected to have strong sales next year. Covering this Rosenblatt Securities stock, 5-star analyst Hans Mosesmann writes: “Strong demand in the cloud, customer, automobile and mobile devices is helping to improve conditions across DRAM, while a power outage and an earthquake limited supply DRAM … Looking for longer-term, an economic recovery and secular trends (5G and AI) should result in stronger demand. ”Unsurprisingly, Mosesmann gives MU shares a buy rating and a target price of $ 120, implying a 36% increase for the next 12 months. (To view Mosesmann’s history, click here) In all, Micron has 22 recent purchase reviews, out of the 24 recorded, giving the stock a solid foundation for its strong buying consensus rating – and demonstrating Wall Street’s confidence in company and stock. The shares are trading at $ 88.12, and their average target price of $ 97.64 suggests room for a ~ 11% rise in the coming months. (See MU’s stock analysis on TipRanks) To find good ideas for trading semiconductor stocks with 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 exclusively those of the analysts presented. The content should be used for informational purposes only. It is very important to do your own analysis before making any investments.