Institutional accounts decided to hit the door on tech stocks this week, and they hit it in a big way, like shoppers at Wal-Mart on Black Friday. The Nasdaq was hammered as typical year-end rotation selling came in hard, and portfolio managers took advantage of massive runs in tech stocks, especially the semiconductors. While the segment could remain volatile, the positive story remains in place, and while caution is probably warranted, it may make sense to pick away at some of the stocks that got hit.
A new Merrill Lynch research report from outstanding semiconductor analysts Vivek Arya makes the case that this week’s sell-off was market driven and not based on sector fundamentals. They also noted that large sell-offs in the PHLX Semiconductor Sector (SOX) index are not uncommon, but the stocks tend to rebound quickly.
The Merrill Lynch report focuses on five stocks that more aggressive accounts may want to look at after the brisk selling. All five are rated Buy at Merrill Lynch.
Advanced Micro Devices
After years of frustrating performance, Advanced Micro Devices Inc. (NYSE: AMD) appears to have turned the corner and is a hot commodity on Wall Street. It is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and graphics processors, and embedded/semi-custom chips.
The analyst feels that AMD, which is releasing the first major offering in five years, the Ryzen chipset, is in his words “uniquely positioned” to compete with the big players like Intel and NVIDIA in the $50 billion total addressable market for personal computers, gaming, artificial intelligence and servers.
In September, CNBC reported that Tesla is working with AMD to refine an AI chip for autonomous driving tasks in its cars. Many think the unconfirmed partnership would make sense, and though most would not expect the shipment of AMD chips to Tesla to have a material impact near term, it would constitute a critical win for AMD and support the thesis that the company is a primary beneficiary of the shift to parallel processing graphics processing units.
The Merrill Lynch price target for the shares is $18, and the Wall Street consensus target is $14.30. The stock closed Thursday’s trading at $10.89 a share.
This stock traded in a tight range from March until last month, but it looks to be breaking out. Cypress Semiconductor Corp. (NASDAQ: CY) manufactures and sells embedded system solutions for the automotive, industrial, home automation and appliances, consumer electronics and medical markets.
The company’s product portfolio includes programmable-systems-on-chip (PSoC), general purpose microcontrollers, analog integrated circuits, USB controllers, connectivity chips (Bluetooth, Wi-Fi, Zigbee) and memory chips.
The company has continued an expansion of its automotive portfolio, which will help enable manufacturers to bring high-tech automotive systems historically available only in luxury models to mainstream vehicles. Leveraging a wide range of differentiated products that includes microcontrollers, power management integrated circuits, memories and touch-sensing solutions, the portfolio enables value-added systems for Cypress’s top-tier automotive customers.
Cypress shareholders are paid a 2.8% dividend. Merrill Lynch has a $21 price objective, and that compares with the posted consensus price target of $18.25. The share price ended Thursday at $16.01.