It should come as no surprise that the growth in the semiconductor industry is being driven by smartphones, tablets and notebooks. This tremendous growth is more than offsetting the declines from desktop PC sales. In a recent report, the semiconductor team at UBS A.G. (NYSE: UBS) raised its semiconductor industry growth forecast for 2013 to +5.4% from +4.0%, and maintained its +6.1% growth target for 2014. UBS has identified stocks to buy in the chip sector with high dividends.
The question that remains is where will the growth stay going forward, and which companies will be the leaders. The revised coverage is based primarily on a raised view for memory (DRAM) and wireless semiconductors, while the non-memory estimate for 2013 growth of +2.5% is more cautious.
What this means for investors is that UBS expects semiconductor sales growth to trough in this quarter and to peak by the first quarter of next year, still leaving some time for stocks to outperform. However, unless end-demand significantly improves, they believe we are at the stage in the cycle where investors have to become increasingly more selective. Their list of stocks to buy reinforces the selectivity angle.
Avago Technologies Ltd. (NASDAQ: AVGO) is a leading supplier for Apple Inc. (NASDAQ: AAPL) and has more than $1 billion of net cash on its balance sheet. The UBS price target for the stock is $42. The Thomson/First Call estimate is at $42 as well. Investors receive a 2.20% dividend.
Broadcom Corp. (NASDAQ: BRCM) is another big supplier to smartphone manufacturers. Broadcom supplies big clients like Apple with high-tech chips that integrate various functions, and it has recently attained several other major customers like Samsung and Nokia. The UBS target for the stock is $45. The consensus is at $40. Shareholders are paid a 1.20% dividend.
Linear Technology Corp. (NASDAQ: LLTC) reported third-quarter 2013 earnings that were in line with the consensus estimates. The weaker-than-expected revenue guidance may indicate limited growth prospects in several important markets, such as communications infrastructure and computing. UBS has a target for the stock of $40, while the consensus estimate is $35. Investors are paid a 2.70% dividend.
Maxim Integrated Products Inc. (NASDAQ: MXIM) is expanding its product portfolio to sensors, motion control and other areas of smartphones, tablets and hybrid devices, which will increase its dollar content per device. The UBS price objective for the stock is $37 and the consensus target is $36.05. Shareholders receive a 3.00% dividend.
Microchip Technology Inc. (NASDAQ: MCHP) is the sixth most shorted stock in the NASDAQ 100. Positive results could ignite a rally in the name. UBS has a $40 price target, and the consensus is at $40 also. Investors are paid a solid 3.80% dividend.
Micron Technology Inc. (NASDAQ: MU) is the second largest DRAM manufacturer in the world behind Samsung Electronics. The UBS target for this often volatile name is $12. The consensus is also at $12.
Nvidia Corp. (NASDAQ: NVDA) delivered a profit, beat Wall Street’s expectations and topped the revenue expectations. UBS has a $15.50 price target. The consensus is at $14. Investors are paid a 2.10% dividend.
Qualcom Inc. (NASDAQ: QCOM) has become a top holding for many portfolio managers around Wall Street. Former top Apple executive Jon Rubinstein recently joined the board of directors. The UBS target for this top name is $76. The consensus price objective is also at $76. Investors are paid a 2.20% dividend.
SanDisk Corp. (NASDAQ: SNDK) makes NAND chips through a joint venture with Japan’s Toshiba, which last Wednesday forecast a 34% increase in operating profit for this year, boosted by strong sales of flash memory chips. The UBS target for the stock is $65 and the consensus is at $65.50.
Silicon Laboratories Inc. (NASDAQ: SLAB) finishes up the list of top semiconductor stocks to buy. The company offers broad-based products, which include microcontrollers, clocks and oscillators, digital isolators and related products, touch controllers, proximity and ambient light sensors. The UBS target for the stock is $49. The consensus price objective is also $49.
One bonus for investors is many of the top stocks to buy are dividend-paying stocks, a reasonably new trait for technology stocks. Combining a solid dividend with the growth potential of semiconductor stocks could be a winning combination.