Deutsche Bank Says 4 Chip Stocks Very Compelling Buys Now

Technology

Published: February 23, 2016 10:20 am

Last Updated: January 13, 2020 12:50 pm

Like the rest of the market, the technology sector, and specifically the semiconductor arena, has had a very tough go of it this year. In fact, through the end of last week the PHLX Semiconductor Sector (SOX) index, which tracks the chips, was down over 9%, although Monday’s rally certainly helped.

While earnings for the group were hit and miss, investors have stayed focused on very so-so fundamentals. While the big picture may not be exciting, certain areas of the sector are looking very strong.

In a new research report from Deutsche Bank, while remaining neutral on the sector as a whole, the firm has four companies it does like, as the analysts believe the stories behind the companies and valuation make them compelling ideas for investors now. All four are rated Buy, and they are really suited for more aggressive accounts.

Broadcom

This is the combined entity after the merger of Avago Technologies and the old Broadcom. The new Broadcom Ltd. (NASDAQ: AVGO) is a leading designer, developer and global supplier of a broad range of analog and digital semiconductor connectivity solutions. Broadcom’s extensive product portfolio serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial and other.

Applications for the company’s products in those end markets include: data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.

The company produces radio frequency (RF) front-end for LTE-enabled Apple products. Wall Street estimates that the company does 15% of its total business with Apple. Additional estimates are that it has between a 13% and 17% revenue exposure to Apple in the wireless communications segment, which was guided up 10% or so quarter over quarter for the third quarter. Customer diversity and content for Samsung could be more than enough to offset slower Apple business.

Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the RF arena. Many on Wall Street see a cyclical rebound in industrial and communications demand.

Broadcom investors are paid a 1.45% dividend. The Deutsche Bank price target for the stock is $157, and the Thomson/First Call consensus target is set at $170.04. Shares closed most recently at $130.64.