6 Momentum Semiconductor Stocks to Own for 2018 and Beyond

ON Semiconductor

This is a smaller cap play that aggressive accounts may want to look at. ON Semiconductor Corp. (NASDAQ: ON) is a vendor of analog power management, analog signal conditioning, standard logic integrated circuits (ICs) and discrete chips into the automotive, communications, computing, consumer, industrial and medical applications.

The company is in the midst of a transformation from a seller of commodity discrete chips into higher value added analog ICs both through organic growth and acquisitions. It is a leading sensor company, and the analysts noted this in the report while also citing a delivered balance sheet and positive cash flow as big positives going forward:

The analysts view ON as an underappreciated way for investors to benefit from the emergence of ADAS and eventually Autonomous Driving. While the company is inherently levered (operationally and financially) and therefore subject to investor fears of cyclical volatility, many continue to see structural upside for the shares.

Merrill Lynch has set its price target at $23, while the consensus target is $20.13. Shares closed Friday at $20.07.

Microchip Technology

Microchip Technology Inc. (NASDAQ: MCHP) not only is a huge Internet of Things benefactor, but a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.

The company offers microcontrollers, such as 8-bit, 16-bit and 32-bit microcontrollers under the PIC brand name and 16-bit dsPIC digital signal controllers, as well as provides microcontrollers for automotive networking, computing, lighting, power supplies, wireless communication and wireless audio applications.

Microchip Technology is only owned by 6% of active managers, which is well below the 2011 peak of 12%.

Investors receive a 1.56% dividend. The Merrill Lynch price target is $100. The consensus price objective is $98.67, and shares closed Friday at $92.73.

Texas Instruments

This old-school chip tech company is a top pick for the fourth quarter at Merrill Lynch. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components to digital light-processing technology and calculators. Some 65% of Texas Instruments sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets.

The company increased its quarterly dividend earlier this year by 32% to 50 cents per share, or $2.00 annualized. The increase reflects the company’s continued strength in free cash flow generation and its commitment to return excess cash to shareholders.

Shareholders are paid a 2.61% dividend. The $100 Merrill Lynch price objective is well above the consensus price target of $88.66. The stock closed Friday at $95.18.

It is important to remember that the market reaction to positive earnings reports may be muted, so the best idea may be to wait for the results, or buy small entry positions, and see if there is not some “selling of the news.”