Semiconductor Check: Buy the Dip in These Highly Ranked Stocks

Headlines have been clamoring with discouraging news that September can be a historically down month for stocks.

While historical data may find this to be somewhat accurate, many would agree that it’s never wise to try and time the stock market.

As it relates to timing downside risk, opportunities can be missed and this may be the case for those who overlook these top-rated semiconductor stocks.

Addressing Nvidia’s Valuation Concerns

There is no doubt that Nvidia NVDA is poised to benefit immensely as the clear-cut leader among designers for artificial intelligence chips at the moment. However, there have been valuation concerns with Nvidia’s stock hitting new 52-week and all-time highs of around $502 per share a few weeks ago.

Still, Nvidia is at one of its most reasonable valuation points over the last few years from a price-to-earnings perspective. With Nvidia’s stock currently trading at $459 and 44.2X forward earnings we can see that this is 64% below its five-year high of 122.1X and a 20% discount to the median of 55.5X.

Even better is that earnings estimate revisions have continued to soar after Nvidia’s blow away second-quarter results in August. This correlates with Nvidia still coveting a Zacks Rank #1 (Strong Buy) and being a prime buy-the-dip candidate with the Average Zacks Price Target of $625.68 a share suggesting 35% upside from current levels.

Companies with a Unique Niche

ACM Research ACMR and ON Semiconductor ON are two other highly-ranked semiconductor stocks to consider. ACM’s stock boast a Zacks Rank #1 (Strong Buy) with ON sporting a Zacks Rank #2 (Buy).

Both companies have unique niches, with ACM providing single-wafer cleaning equipment for semiconductor companies and ON Semiconductor being an original equipment manufacturer of a broad range of discrete and embedded semiconductor components.

ACM’s stock certainly stands out at $18 and 15.1X forward earnings. Considering the premium many semiconductor-related stocks can command, ACM trades nicely beneath the S&P 500’s 20.8X. More intriguing, ACM’s stock trades 88% below its five-year high of 123.2X and at a 58% discount to the median of 35.7X.

Plus, ACM’s annual earnings estimates have remained noticeably higher over the last 60 days with EPS expected to expand 49% this year at $1.24 per share and rise another 2% in FY24.

Rising earnings estimates are compelling for ON Semiconductor as well. Despite earrings projected to dip -1% in FY23 estimates are up 8% in the last 60 days. Even better, FY24 earnings are expected to rebound and rise 9% to $5.72 per share with estimates up 6% over the last two months.

ON Semiconductor’s stock trades on par with its industry average at 18.7X forward earnings and nicely beneath the benchmark. Furthermore, this is well below its own five-year high of 42.6X and closer to the median of 15.7X.

Bottom Line

In terms of price-to-earnings valuation, these semiconductor stocks are very attractive relative to their past. More importantly, rising EPS estimates are supportinve of Nvidia, ACM Research, and ON Semiconductor’s sock being prime buy-the-dip candidates and they should remain viable long-term investments.
NVIDIA Corporation (NVDA): Free Stock Analysis Report

ACM Research, Inc. (ACMR): Free Stock Analysis Report

ON Semiconductor Corporation (ON): Free Stock Analysis Report

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