Technology

Analyst Cautious on 5 Chip Stocks to Buy Before Earnings

Despite a market that appears to be teetering toward a larger move to the downside, most Wall Street analysts and strategists remain reasonably bullish on the prospects for technology in 2015. One part of the sector that should be poised to report challenging fourth-quarter results are the semiconductor stocks. A new report from UBS says the firm is cautiously optimistic on the top companies in its coverage universe, but they do cite dollar strength as a possible headwind.

The UBS team has focused on the top companies in the industry that not only have room to sustain their current progress, but open up new silos of revenue with product additions and enhancements. Despite some fourth quarter bumps in the road, 2015 may be a smoother path. One potential positive for the sector is that the U.S. research and development tax credit was renewed retroactively for 2014, and could offer a modest boost to earnings-per-share across the board. Here are five top chip stocks rated Buy at UBS now.

Avago Technologies Ltd. (NASDAQ: AVGO) not only gets a huge chunk of its business from Apple, but it is a big provider in the cloud/hyperscale data center and networking sector. The company supplies Cisco Systems with application-specific integrated circuit for a variety of high-end gear. It also indirectly sells into Scientific Atlanta by supplying integrated circuits for disk drives that end up in DVRs.

Avago investors are paid a 1.3% dividend. The UBS price target for this top stock is $115. The Thomson/First Call consensus price target is $115.27. Avago closed Wednesday at $103.39 a share.

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Intel Corp. (NASDAQ: INTC) introduced the company’s fifth generation processor at this year’s Consumer Electronics Show. Intel’s commitment to smartphone and mobile applications, combined with the resurgence of PC growth last year, made it one of the best large cap value stocks to buy in 2014, and the same outlook could drive the stock this year. Intel trades at 15 times forward earnings, more than in recent years, but still a reasonable multiple for investors looking for growth. The UBS team continues to see upside potential in the chip giant’s shares driven by the combination of a now stable, and some think growing, PC market, improved profitability in mobile and a very large share repurchase plan.

Intel shareholders are paid a solid 2.4% dividend. UBS has a $37.50 price target, while the consensus target is $36.10. Intel closed at $36.35. Also, here is our own 2015 bullish and bearish analysis for Intel.

Micron Technology Inc. (NASDAQ: MU) is a leader in DRAM chip sales and is one of the top UBS memory picks, and it is a stock to buy after earnings. The company saw a nice streak of beating earnings estimates come to an end when it recently reported fiscal first-quarter revenues that fell short of expectations. It also provided second-quarter fiscal 2015 estimates that were less than stellar. The stock also took a hit when SanDisk pre-announced lower revenues. With a potential looming memory shortage, the stock could have serious upside potential. David Einhorn’s Greenlight Capital still holds more than 30 million shares of the stock after selling some in the late summer and fall.

While the UBS price target is $38, the consensus target is $42.35. Micron closed Wednesday at $30.05 down 2.5%. Also, here is how other analysts view Micron after its earnings report.

ALSO READ: 5 High-Growth Software Stocks to Buy for 2015

NVIDIA Corp. (NASDAQ: NVDA) remains Silicon Valley’s top graphics chip company, and many on Wall Street see the stock having the ability to soar over the next year. The company has been able to use its ability to leverage past investments. That enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year. Despite a strong move over the last part of 2014, some of the top tech analysts still think the best could be ahead, especially after trading sideways for the past six months prior to taking a leg up.

NVIDIA investors receive a 1.7% dividend. The UBS target is set at $24, and the consensus price objective is $21.28. NVIDIA closed Wednesday at $19.74.

SanDisk Corp. (NASDAQ: SNDK) was absolutely blasted when the company recently lowered its revenue outlook for the fourth quarter of 2014 based on a soft demand scenario. Following the announcement, the company’s shares plunged almost 14%. SanDisk’s quality, state-of-the-art solutions are at the heart of many of the world’s largest data centers and embedded in advanced smartphones, tablets and PCs. While some have speculated the slowing sales at Samsung are the reason for the revenue revisions, the UBS team thinks that the soft fourth quarter could be a one-off correction, and this gives investors an excellent entry point for the top stock.

SanDisk investors are paid a 1.2% dividend. The UBS price target is $100, and the consensus target is slightly higher at $104.34. Shares closed trading on Wednesday at $79.98.

ALSO READ: J.P. Morgan Stays Very Defensive on Top MLPs to Buy in 2015

With two of the top stocks weaker in the fourth quarter, and three still to report, investors may want to watch and wait for results. The bottom line is these five leading chip companies could be poised for a strong 2015, and any reduction in price offering a better entry point could be huge edge for long-term technology investors.