The semiconductor sector has had a very nice run over the past couple of years. Increased demand from everything electronic, including smartphones, tablets and personal computers (PCs) and laptops, has been very solid. However, the demand for PCs is slowing dramatically, and although smartphone growth remains solid, the blockbuster launch of the iPhone 6 cannot be duplicated every year. A new report from UBS focuses in on just five stocks for clients to buy now.
The UBS team is focused on growth in areas like video gaming, which they addressed specifically in the new report. They feel that the industry move to virtual reality technology may be a huge boost to the sector and, more importantly, to sales. The five stocks currently rated at Buy from UBS in the chip arena are: Avago Technologies Ltd. (NASDAQ: AVGO), Intel Corp. (NASDAQ: INTC), Micron Technology Inc. (NASDAQ: MU), Nvidia Corp. (NASDAQ: NVDA) and SanDisk Corp. (NASDAQ: SNDK).
This chip company not only gets a huge chunk of its business from Apple Inc. (NASDAQ: AAPL), but it is a big provider in the cloud/hyperscale data center and networking segment. The company supplies Cisco Systems Inc. (NASDAQ: CSCO) with application-specific integrated circuits 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 is expected to be a huge winner in the fast growing 4G LTE market in China. Some analysts on Wall Street feel that the market could more than triple over the next few years and drive between 300 million to 400 million devices by 2017.
Avago investors are paid a 1.17% dividend. The UBS price target for this top stock is $138. The Thomson/First Call consensus price target is right in line at $138.15. The stock closed Wednesday at $130.44 a share.
This is the stock that Wall Street has been taking to the woodshed for a beating almost the entire first quarter. The iconic chip giant had a stellar 2014 on the tailwind from continued PC and notebook sales. The stock has underperformed the S&P 500 by a massive 14% year to date. Recently it dramatically lowered estimates for the first quarter, an event that was not altogether unexpected.
Wall Street analysts have pointed out that earnings confessions are not that unusual in the chip world, and history suggests buying the confession pays in semiconductors, and many are of the opinion that the recent earnings warning announcement is a stellar opportunity for investors to buy a quality stock.
Intel investors are paid an outstanding 3.13% dividend. UBS has the price target set at $38. The consensus target is much lower at $34.70. Shares closed trading on Wednesday at $30.89.
This is a global leader in advanced semiconductor systems. Its broad portfolio of high-performance memory technologies — including DRAM, NAND and NOR flash — is the basis for solid state drives, modules, multichip packages and other system solutions. The company’s memory chip solutions enable the world’s most innovative computing, consumer, enterprise storage, networking, mobile, embedded and automotive applications.
The DRAM market is always in a supply and demand tug-of-war, and Micron has learned to balance inventory and production much better than in years past.
The UBS price target for the stock, which soared to the mid-$30s back in December, is $38. The consensus target is even higher at $42.05. Shares closed Wednesday at $28.16.
Nvidia is one of the leaders when it comes to supplying graphics processing technology for the 3D graphics market, including desktop graphics processors and gaming consoles. It is also moving into visual computing chips for cars, mobile devices and supercomputers. Nvidia has a technology partnership with electric car maker Tesla Motors Inc. (NASDAQ: TSLA) and posted very strong earnings recently. The company has been able to use its ability to leverage past investments with a more controlled spending structure ahead, which enables strong cash flow that is allowing a focus on capital return, currently estimated to be $1 billion next year.
Nvidia investors receive a 1.45% dividend. The UBS target price is set at $25, and the consensus price objective is $23.17. The stock closed Wednesday at $22.87 a share.
SanDisk is a supplier of quality, state-of-the-art solutions that are at the heart of many of the world’s largest data centers, as well as embedded in advanced smart phones, tablets and PCs. While some have speculated the slowing sales at Samsung are the reason for 2015 revenue revisions, many top Wall Street analysts think that the soft fourth-quarter earnings reports could be a one-off correction, and this continues to give investors an excellent entry point for this top stock.
SanDisk investors are paid a 1.4% dividend. The UBS price target is $92, and the consensus target is slightly lower at $91.94. Shares closed trading on Wednesday at $82.90.
While the UBS team is somewhat cautious on the chip outlook for the rest of 2015, they, like many, are reasonably positive on the long-term prospects for the industry and the top companies. With that in mind, these stocks are still more appropriate for aggressive growth portfolios.
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