After plunging in the fourth quarter of last year, the semiconductor segment has rallied big-time in the first quarter. The PHLX Semiconductor Sector (SOX) index, which tracks that segment, is up 33% to an all-time high, compared with the 16% gain seen in the S&P 500. The swift reversal in outlook toward the industry and the overall economy caught many investors and Wall Street pundits by surprise, but with some positive tailwinds, and potential catalysts, there still could be solid upside.
With earnings reports for many of the top companies due right around the corner, some on Wall Street are treading very carefully, and the analysts at Deutsche Bank are as well. In a new research report, they preview first-quarter earnings and remain positive on some of the top companies in their coverage universe, though staying neutral on the sector as a whole.
The Deutsche Bank report noted this:
In light of ongoing cyclical pressures and following the recent run-up in the SOX, we remain neutral on the Semiconductor sector into first quarter earnings season (albeit incrementally more constructive as fundamental medicine continues to be taken). While investors appear very willing to look through the current first and second quarter headwinds and focus on the eventual cyclical recovery, we believe the timing of that recovery remains uncertain (second half of 2019 vs 2020) and much of that potential fundamental rebound to be reflected in both revenue and EPS estimates and, more importantly, share prices.
Deutsche Bank has five top semiconductor picks, and all are rated Buy at the firm.
This stock has broken out to all-time highs. Broadcom Inc. (NASDAQ: AVGO) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.
Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many on Wall Street see a cyclical rebound in industrial and communications demand.
Broadcom investors are paid a very solid 3.33% dividend. Deutsche Bank has a $330 price target on the shares. The Wall Street consensus target price is lower at $312.45, but the shares closed Wednesday’s trading at $330.53 apiece.
This small-cap company 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.
The company’s 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 company announced last year that it is partnering with Innovium to provide customers multiple highly scalable industry-leading 100 G to 400 G data center solutions to meet the explosive bandwidth demand growth.
Deutsche Bank has a price target of $50, and the posted consensus target was last seen at $42.36. The stock closed at $46.92 a share on Wednesday.