Merrill Lynch Says Now's Your Chance to Buy 4 Semiconductor Giants

Many analysts feel that KLA-Tencor is less cyclical than peers with best-in-class returns. The Orbotech purchase adds growth/diversity and sales/earnings per share accretion. Risks for the shares include industry cyclicality, relatively muted growth and limited operating leverage.

Shareholders are paid a solid 2.83% dividend. Merrill Lynch has a price objective of $115, but the consensus target is higher at $120.62. The shares closed on Friday at $93.29 apiece.


This remains one of the firm’s top picks in the chip arena, and it is on the Merrill Lynch US 1 list. 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.

The $300 Merrill Lynch price target compares with the $291.44 consensus target. The shares closed at $214.92 on Friday.


While not as well known as the other three companies, this is a solid chip play for investors. Xilinx Inc. (NASDAQ: XLNX) is a leading fabless supplier of high-density programmable logic devices, which are standard integrated circuits that offer significant advantages over custom logic chips, such as application-specific integrated circuits. They are used extensively in key end markets such as communications.

The company posted very solid results recently, and the analysts at Merrill Lynch said this:

Impressive earnings beat and estimates raised on communications, data center, auto/industrial strength; raise fiscal year 2019 and 2020 revenue/EPS estimates and reiterate Buy. 20%+ 2019 earnings growth in communications as 5G ramp accelerates 2-3 quarters; now expected in the second half of 2019 (vs. 2020 prior) Continued strength in favorite end market, data center, with multiple new design wins; keep our eye on macro uncertainty.

The Merrill Lynch price target is $95. The posted consensus target is $85.55, and the stock ended last week at $85.07 per share.

These four stocks were absolutely hammered in October and could provide aggressive accounts some serious alpha going into the end of the year. Given that earnings are out of the way, look for any dip to buy, as we could have volatility due to the elections.

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