For those who have been in the semiconductor arena over the past two years, it has been an outstanding ride. Just how outstanding of a run you ask? In 2017 alone, the PHLX Semiconductor Sector Index (SOX) index is up a stunning 40%, and that is an aggregate figure. Some of the top companies are up even more than that on an individual basis. The question for investors is a timeless one: Buy, sell or hold?
24/7 Wall St. reviews dozens of daily analyst research reports, and this turns into hundreds of reports each week. In the second half of December, there have been many Wall Street strategists making big bold predictions for stocks in the year ahead. That is after the Dow Jones Industrial Average is up about 25% and the S&P 500 is up about 20% so far in 2017. With the semiconductors up even more, it may be a bold move to continue to stay in the mix.
Earlier in December, Merrill Lynch and its outstanding semiconductor analyst Vivek Arya made the case that when the recent big sell-off in the sector came, it was market driven, and not based on sector fundamentals. They also noted that large sell-offs in the SOX index are not uncommon, but the stocks tend to rebound quickly, which is exactly what happened.
Stifel was another firm that we cover that felt that rather than an imminent cyclical downturn in the industry that forced the big early December selling, overall rotation out may have been the main factor in the decline. With industry fundamentals still looking positive, especially in the industrial and automotive sectors, the firm thinks investors should buy some of the top companies for solid 2018 gains.
In a recent research report from Jefferies, the firm’s outstanding semiconductor analyst Mark Lipacis noted that the continued demand from Internet of Things devices is huge for the analog chip companies. The data those devices generate get processed with new artificial intelligence technology, which is leading to both higher quality and more demand for those devices. It is the perfect storm for leading stocks. The Jefferies report noted this:
Earnings forecasts for analog companies over the next 12 months are at all-time-highs (18% above previous peak forecasts), gross and operating margins are also at all-time-highs and while tight capacity and stretching lead times have led to better pricing, many investors are becoming more concerned that inventories are building in the supply chain and we’re at the peak of the cycle. Mark disagrees, believing that consolidation is the real culprit which could actually drive profitability higher.
All these top analysts remain bullish on the sector, and here we highlight 10 companies that are all rated Buy and could have solid potential going forward in 2018.
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.
This year the company released its first major offering in five years, the Ryzen chipset, which many feel is 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.
The Merrill Lynch price target is $18, and the Wall Street consensus target is $14.47. The shares closed Friday at $10.28.
This stock spiked recently and has come back into a good buy range. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits (ICs) for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.
Analog Devices investors receive a 2.03% dividend. The Jefferies price target is $105. The consensus target is $98.04, and shares closed Friday at $89.03.
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. Its 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.
Shareholders receive a 2.89% dividend. Merrill Lynch has a $21 price objective, while the consensus price target is $18.46. Shares closed Friday at $15.24.
Its shares were down at one point almost 30% from highs printed back in February, but this is a strong contender in the data center arena. Inphi Corp. (NYSE: IPHI) provides high-speed analog and mixed signal semiconductor solutions for the communications, data center and computing markets worldwide. Its end-to-end data transport platform delivers high signal integrity at leading-edge data speeds, addressing performance and bandwidth bottlenecks in networks, from fiber to memory. Inphi has solutions to minimize latency in computing environments and enable the rollout of next-generation communications infrastructure.
The $52 Stifel price target is well above the consensus estimate of $45.13. The stock closed Friday at $36.60.