Deutsche Bank Positive on Select Semiconductor Stocks: 5 to Buy Now

Lee Jackson
Maxim Integrated Products

This company supplies some chips to Samsung for the red-hot Galaxy line. Maxim Integrated Products Inc. (NASDAQ: MXIM) designs, develops, manufactures and markets various linear and mixed-signal integrated circuits (ICs) worldwide. The company also provides a range of high-frequency process technologies and capabilities for use in custom designs. It primarily serves automotive, communications and data center, computing, consumer and industrial markets.

The Deutsche Bank team has favored Maxim for some time as the company continues to generate significant cash and targets 80% payout ratio. The company’s dividend yield is near its five-year average, and the company has grown its dividend in each of the past six years. The favorable view is based on expectations of continued strong growth in automotive with solid double-digit year-over-year growth and continued strength in its industrial segment.

Shareholders are paid a solid 3.19% dividend. The $67 Deutsche Bank price objective compares with the $63.68 consensus target price. The shares closed at $57.72 apiece on Thursday.

Monolithic Power Systems

This off-the-radar play could be offering continued upside potential. Monolithic Power Systems Inc. (NASDAQ: MPWR) designs, develops and markets integrated power semiconductor solutions and power delivery architectures for consumer, industrial, computing and storage, and communications market segments.

The company offers direct current (DC) to DC converter ICs used to convert and control voltages of various electronic systems, such as portable electronic devices, wireless LAN access points, computers, monitors, automobiles and medical equipment.

It also provides lighting control ICs for backlighting that are used in systems, which provide the light source for LCD panels in notebook computers, monitors, car navigation systems and televisions, as well as for general illumination applications. In addition, it offers alternating current (AC)/DC offline solutions for lighting illumination applications and AC/DC power conversion solutions for various end products that plug into a wall outlet.

Shareholders are paid a small 0.9% dividend. Deutsche Bank has set its price objective at $150. The consensus target is $159.50, and the shares ended trading on Thursday at $136.78.

ON Semiconductor

Aggressive accounts may want to look at this smaller cap play. ON Semiconductor Corp. (NASDAQ: ON) is a vendor of analog power management, analog signal conditioning, standard logic ICs and discrete chips into the automotive, communications, computing, consumer, industrial and medical applications. The company is in the midst of a transformation from a seller of commodity discrete chips into higher value-added analog ICs, both through organic growth and acquisitions.

The analysts view ON Semiconductor as an underappreciated way for investors to benefit from the emergence of advanced driver-assistance systems and eventually autonomous driving. While the company is inherently levered (operationally and financially) and therefore subject to investor fears of cyclical volatility, many continue to see structural upside for the shares.

The Deutsche Bank price target is $27. The posted consensus target is $27.34, and the stock ended the most recent trading session at $19.51 per share.

Given the overall caution the Deutsche Bank team has on the industry, it may make sense to put on partial positions here and see how investors respond to third-quarter results. In addition, we are in the time of the year that is often precarious, so that should be factored in as well.