Sterne Agee analyst Vijay Rakesh has given a snapshot on various semiconductor sector plays ahead. While many fundamental analysts have keyed in on fundamentals, one of Rakesh’s angles is covering higher dividends, stock buybacks and share repurchase plans as potential drivers.
On share buyback and share repurchase plans, Rakesh points to higher buybacks at companies like SanDisk Corp. (NASDAQ: SNDK), ON Semiconductor Corp. (NASDAQ: ONNN) and Skyworks Solutions Inc. (NASDAQ: SWKS). He thinks that this is potentially pointing to increased Optimism on their outlook and attractive current valuations. Nvidia Corp. (NASDAQ: NVDA) also was outlined as a potential winner with its new $750 million buyback announcement.
On the flip side, some chip companies are decreasing share repurchases, such as Analog Devices Inc. (NASDAQ: ADI) and Intel Corp. (NASDAQ: INTC). Analog Devices said that buybacks have come down significantly as it continues to be disciplined and opportunistic in share price buyback levels.
Then there is the dividend front that has enticed income-oriented investors for years now. Rakesh said, “Given an increasing Industry wide and investor focus on Dividends, we are pointing out that we currently have 7 names paying dividends.” The firm sees strong dividends (with yields included) in Avago Technologies Ltd. (NASDAQ: AVGO) at 2.2%, Cypress Semiconductor Corp. (NASDAQ: CY) at 3.9%, Nvidia Corp. (NASDAQ: NVDA) as a new dividend at a 2% yield, Analog Devices Inc. (NASDAQ: ADI) at a 2.9% yield, Intel Corp. (NASDAQ: INTC) at 3.7%, Qualcomm Inc. (NASDAQ: QCOM) at 2.1% and Texas Instruments Inc. (NASDAQ: TXN) with a 3% yield. Rakesh pointed out that dividend payout ratios have been going up on Avago Technologies and Cypress Semiconductor, while Nvidia is a new initiation.
For those who wish to avoid the individual company risks and eliminate the risk that either the Apple Inc. (NASDAQ: AAPL) iPad or iPhone upgrade will no longer include one company’s chipsets, there are exchange traded funds (ETFs) for the chip sector that capture the dividend and buyback names handily. The Market Vectors Semiconductor ETF (NYSEMKT: SMH) is listed as having a dividend of almost 2% and is very active, although we would point out that the last dividend was an annual dividend, and we have no way to know what the dividend will be for 2013.
Some of the expected upside in the share price is well above-market expectations for some of these names. Below is Vijay Rakesh’s coverage universe with ratings, price targets and implied upside or downside: