SunTrust Says Semiconductor Cycle Slowing: Just 5 Stocks to Buy Now

Print Email
Microchip Technology

This is a huge Internet of Things benefactor but shares have been battered recently. Microchip Technology Inc. (NASDAQ: MCHP) is 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 received a receipt of antitrust clearance in the United States for the acquisition of Microsemi and the deal closed in June. Most on Wall Street feel it is an outstanding addition but may take some time to fully integrate.

A huge point for potential investors is that Microchip shares are down 31.0% since the company reported earnings on August 9. In this time the valuation has decreased from 13.0 times consensus forward non-GAAP earnings per share to 10.1 times. This compares to the five-year peak P/E of 20.1 times and five-year trough P/E of 10.0 times for the shares. Clearly, the stock is cheap compared to the past.

Investors receive a 2.13% dividend. The $112 SunTrust price target compares with the $109.80 consensus price objective. The stock closed Tuesday at $69.15.

Monolithic Power Systems

This off-the-radar play could offer upside potential and is one of the top Small/MidCap picks at SunTrust. Monolithic Power Systems Inc. (NASDAQ: MPWR) designs, develops and markets integrated power semiconductor solutions and power delivery architectures for consumer, industrial, computing and storage, and communications market segments.

The company offers direct current (DC) to DC converter ICs used to convert and control voltages of various electronic systems, such as portable electronic devices, wireless LAN access points, computers, monitors, automobiles and medical equipment.

It also provides lighting control ICs for backlighting that are used in systems, which provide the light source for LCD panels in notebook computers, monitors, car navigation systems and televisions, as well as for general illumination applications. In addition, it offers alternating current (AC)/DC offline solutions for lighting illumination applications and AC/DC power conversion solutions for various end products that plug into a wall outlet.

Shareholders receive a 1.05% dividend. SunTrust has a price objective of $156. The consensus target is $158.63, and shares closed Tuesday at $118.30, up almost 4% on the day.

Nvidia

This stock remains one of the firm’s top picks in the chip arena. 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. 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.

The stock is sensitive to risk-off in high-growth stocks, but new second-half products in gaming, artificial intelligence/data center can catalyze recovery. Overstated noise from crypto mining (offset by gaming strength) and autonomous car testing (immaterial for two years) has added volatility to the shares.

SunTrust has set its price target at $316. The consensus target is $298.27, and shares closed most recently at $245.83, up almost 5%.

I'm interested in the Newsletter
 

These five top stocks could be exciting fourth-quarter portfolio additions. It is important to note that they are only suited for aggressive growth accounts that can stand price fluctuations and volatility. It may make sense to buy partial positions in front of the upcoming third-quarter results.