One area that has stayed on a roll for well over a year is the semiconductors, and with good reason. With application in everything from automobiles to industrial, to gaming and the Internet of Things, and so much more, than demand has been incredible. With valuations somewhat stretched, you would think many top portfolio managers may be lightening up on the shares. The fact is, in many cases, managers are underweight and may actually start buying.
In a new research report, Vivek Arya, the outstanding semiconductor analyst at Merrill Lynch, makes the case that while portfolio ownership of semiconductors remained even or declined month over month in April, there could be some opportunities for four top stocks, one of which is very under-owned by large cap portfolio managers.
Here are the four stocks rated Buy at Merrill Lynch that are under-owned and could be great additions to institutional portfolios.
Advanced Micro Devices
After years of frustrating performance, this company appears to have turned the corner and is a hot commodity on Wall Street, despite a recent earnings hiccup. Advanced Micro Devices Inc. (NYSE: AMD) is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and graphics processors, and embedded/semi-custom chips.
The analyst feels that AMD, which is releasing the first major offering in five years, the Ryzen chipset, is in his words “uniquely positioned” to compete with the big players like Intel and NVIDIA in the $50 billion total addressable market for personal computers, gaming, artificial intelligence and servers.
Plus, AMD is held by just 1.3% of active managers, which is way below the historical 10% ownership level at a relatively equal weight position.
The Merrill Lynch price target for the stock is $16.60, and the Wall Street consensus target is set at $12.57. The stock closed Monday at $10.04 per share.
Microchip Technology Inc. (NASDAQ: MCHP) not only is a huge Internet of Things benefactor, but a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.
The company offers microcontrollers, such as 8-bit, 16-bit and 32-bit microcontrollers under the PIC brand name and 16-bit dsPIC digital signal controllers, as well as provides microcontrollers for automotive networking, computing, lighting, power supplies, wireless communication and wireless audio applications.
Microchip Technology is only owned by 7% of active managers, which is well below the 2011 peak of 12%.
MicroChip investors are paid a very solid 1.91% dividend. Merrill Lynch has an $85 price target for the stock, and the consensus price objective is $85.12. The stock closed Monday at $75.46 a share.