Merrill Lynch Out With 5 Top Chip Picks for the Rest of 2016

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Intel

This leader in semiconductors is working hard to scale away from dependence on personal computers. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide. The company’s platforms are used in various computing applications comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.

The company also provides communication and connectivity offerings, such as baseband processors, radio frequency transceivers and power management integrated circuits, and tablet, phone and Internet of Things solutions, which include multimode 4G LTE modems, Bluetooth technology and GPS receivers, software solutions and interoperability tests, as well as home gateway and set-top box components.

Intel reported an inline second quarter, but data center sales came in way below expectations. But a new partnership with Microsoft for a virtual reality, as well as a consistent shift away for reliance on chips for personal computers, keeps the stock a compelling buy.

Intel investors receive a 2.84% dividend. The $42 Merrill Lynch price target is well above the consensus target of $37.97 and the most recent close at $36.56.

NVIDIA

This is a top chip stock that has reported strong earnings this year, and posted through the roof second-quarter numbers earlier this month. NVIDIA Corp. (NASDAQ: NVDA) 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.

NVIDIA is also moving into visual computing chips for cars, mobile devices and supercomputers. The company has a technology partnership with electric car maker Tesla Motors. It has been able to use its ability to leverage past investments, with a more controlled spending structure ahead on unified, which enables strong cash flow that is allowing a focus on capital return, which is currently estimated to be $1 billion next year.

Top Wall Street analysts feel the stock is maturing to a platform company from a pure chip company, and Jefferies sees the stock continuing to benefit from four secular trends: VR, PC gaming, chips in the automobile industry and graphic processing units in the cloud.

The $72 Merrill Lynch price objective compares with the consensus target of $64.72. The shares closed Thursday at $62.69.

Skyworks Solutions

This company could be ready for a big move higher. Skyworks Solutions Inc. (NASDAQ: SWKS) designs, develops, manufactures and markets proprietary semiconductor products, including intellectual property worldwide.

The product portfolio includes amplifiers, attenuators, battery chargers, circulators, DC/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrids, LED drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase shifters, phase locked loops, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, VCOS/synthesizers and voltage regulators.

While the low demand for the iPhone 6s did trim earnings early on this year, analysts are very positive on the stock as the iPhone 7 cycle begins. In fact, they expect the company to gain 10% to 15% higher content versus the last generation phone, and the stock was up big Thursday on iPhone 7 expectations.

Investors are paid a 1.46% dividend. The Merrill Lynch price objective is $85. The consensus target is $83.17. Shares closed Thursday at $77.02, up well over 6%.

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These five top semiconductor technology companies have very bright futures. Given the pricey market, investors may want to buy partial positions here and see how the often volatile months of September and October play out.