Market corrections and sell-offs are always the same. What started as a trickle can turn into a torrent fast, and once the margin calls come a knocking, things can get real ugly. We have seen just that, as investors sell everything with any tinge of risk and pour the money into very low-yielding U.S. Treasury securities. For those with some dry powder, this sell-off can turn into a goldmine, especially with some top semiconductor stocks being put on sale.
In a recent research note, SunTrust Robinson Humphrey, turned positive on the chip space, as many of the overall metrics the analysts look at are supportive of a positive bias. While the note said that the consumer sentiment momentum is less than stellar, the group trades at a 6% discount to the S&P versus a five-year premium of 3%.
Here are the three stocks that are rated Buy at SunTrust featured in the research report.
This is considered a top play for investors looking for a chip stock with Internet of Things exposure. NXP Semiconductors N.V. (NASDAQ: NXPI) is down a stunning 44% from highs printed in June of 2015 but is the top pick at SunTrust.
The merger with Freescale Semiconductor was widely applauded on Wall Street, and many analysts believe it is transforming the company into a powerhouse. NXP became the fourth largest semiconductor company in the industry, and it is the number one supplier in auto semiconductors, number one in global microcontrollers (MCU) and a dominant supplier in mobile payments.
NXP is getting its chips into high-growth areas such as contactless mobile payments, mobile-phone charging, increased cellular data consumption and LED lighting. With it trading at a massive 40% discount to peers, the SunTrust team is very positive on the faster earnings growth potential relative to the competition.
The SunTrust price target for the stock is $98, and the Thomson/First Call consensus target is $104.75. The stock closed Monday at $64, down a mind-numbing 9.5% on the day.
The blockbuster buyout of chip giant Broadcom made big headlines last year, and shares are down a stunning 16% since the end of last year. Avago Technologies Ltd. (NASDAQ: AVGO) was originally a part of Hewlett-Packard and gets a huge chunk of its business from Apple and Samsung.
Avago is a big provider in the cloud/hyperscale data center and networking sector. In fact, it recently announced it will demonstrate its latest optical transceiver technologies for next generation data center and enterprise storage applications. As data center networks transition to 100G speeds to support higher bandwidth demands, technical challenges emerge across various levels of the network from storage endpoints to servers to top-of-rack and core switches.
The company produces radio frequency (RF) front-end for LTE-enabled Apple products. Wall Street estimates that the company does 15% of its total business with Apple. Estimates are that Avago has between a 13% and 17% revenue exposure to Apple in the wireless communications segment. Customer diversity and content for Samsung could be more than enough to offset slower Apple business.
SunTrust likes the leadership in the mobile, data center and broadband markets, and especially in the RF arena. Many on Wall Street see a cyclical rebound in industrial and communications demand. Some do caution that the ongoing integration and financial risk of the Broadcom acquisition could weigh on the stock.
Avago investors receive a 1.44% dividend. SunTrust has a $180 price target. The consensus target is $171.46. Shares closed on Monday at $121.86, down over 5%.
This company could benefit from continued industrial demand. Microsemi Corp. (NASDAQ: MSCC) offers a comprehensive portfolio of semiconductor and system solutions for communications, defense and security, aerospace and industrial markets. Products include high-performance and radiation-hardened analog mixed-signal integrated circuits; power management products; timing and synchronization devices and precise time solutions, setting the world’s standard for time; voice processing devices; RF solutions; discrete components; security technologies and scalable anti-tamper products; Ethernet solutions; power-over-Ethernet integrated circuits and midspans.
Microsemi was added to the Semiconductor (SOX) index last year and delivered first-quarter fiscal 2016 adjusted earnings that matched Wall Street consensus. Revenues came ahead of the consensus estimate, driven by strong growth across all the end markets. The company also reported the book-to-bill ratio was greater than one, which indicates revenue growth. SunTrust sees potential upside in the military and aerospace sectors.
The $49 SunTrust price target is higher than the consensus of $43.92. Shares closed Monday at $30.80.
The SunTrust analysts are right to focus on the companies that aren’t as tied to PC sales, which continue to slump. After the recent massive selling, all these stocks are offering investors outstanding entry points for those looking to buy now. However, they are suitable only for aggressive accounts, and they are vulnerable to continued selling.