Technology

3 Semiconductor Stocks to Buy That Could Outperform Into 2016

Intel

The Jefferies team thinks that Windows 10 and the usual seasonality could be big for this large cap leader. Intel Corp. (NASDAQ: INTC) is a top franchise pick trading very cheap at 13.46 times estimated 2015 earnings. The venerable chip leader remains the largest semiconductor company in the world and controls nearly 80% of the microprocessor market. The company continues to lower capital expenditures while working on bringing its inventory levels into adjustment.

Intel wants to be at the center of what is called the current computing revolution. The first wave of computing focused on personal computers, and then laptops, where Intel was dominant. With more and more computing becoming about the mobile revolution and connected devices like smartphones and tablets, Intel wants to boost its foothold in these areas while maintaining its leadership within servers that power data centers. If any company has the deep pockets to hold on to its strength and forge new ones, it is the Silicon Valley giant. We recently covered the company’s hot new memory chip being co-developed with Micron Technology.

Intel investors continue to be paid an outstanding 3.3% dividend. The Jefferies price target is $36, and the consensus is set at $33.34. The stock closed Tuesday at $28.91.

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NXP Semiconductors

This is considered a top play for investors looking for a chip stock with Internet of Things exposure. The NXP Semiconductors N.V. (NASDAQ: NXPI) merger with Freescale Semiconductor is ahead of schedule and was widely applauded on Wall Street, and many analyst believe the merger can transform the company into a powerhouse. The merger made NXP the fourth largest semiconductor company in the industry. It is also important to note that the combined company would be the number one supplier in auto semiconductors, number one supplier in global microcontrollers and a dominant supplier in mobile payments.

The company recently unveiled the industry’s most complete USB Type-C solution, including authentication and power delivery capabilities to further deliver secure connections. The authentication capabilities can be used to validate a device and determine whether specific functionality of that device should be enabled. This will maximize battery life and could prevent safety hazards or equipment damage from low quality materials or non-compliant products. For example, detecting counterfeit power supplies before they are used for rapid charging functions.

NXP is getting its chips into high-growth areas such as contact-less mobile payments, the Internet of Things, mobile-phone charging, increased cellular data consumption and LED lighting. The two business segments that cover these products grew 39% and 29% year over year, very impressive numbers. With a diversified product base, the stock remains a solid buy, albeit a touch pricey compared to others.

The Jefferies price target is $116, but the consensus target is $120.33. The stock closed Tuesday at $88.34.

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While not as contrarian as energy or gold, the chip sector has had a very tough go of it so far in 2015. For tech investors looking to take profits from other momentum technology areas and redeploy, this may be the perfect place to look to reset capital.