Despite Massive Semiconductor Run, SunTrust Likes 3 Stocks Into Earnings

The company received a receipt of antitrust clearance in the United States for the acquisition of Microsemi and the deal closed in June of 2018. Most on Wall Street feel it is an outstanding addition but may take some time to fully integrate.

The SunTrust team stays very positive on the stock and noted this:

Despite having already delivered 4% above-SOX returns year-to-date, we believe the stock is set up well into Q1 earnings because (a) consensus models below-seasonal growth for the remainder of 2019, (b) the company has better than average end market exposure (aerospace/defense & communications, and no handsets), (c) MSCC synergies are still coming, and (d) valuation isn’t stretched.

Microchip Technology investors are paid a 1.76% dividend. SunTrust has a price target for the shares of $112, and the consensus price objective was last seen at $99.81. The shares closed most recently at $98.71 apiece.

NXP Semiconductors

This is still considered a top play for investors looking for a chip stock with Internet of Things exposure. NXP Semiconductors N.V. (NASDAQ: NXPI) became the fourth largest semiconductor company in the industry after it merged with Freescale in late 2015. It is also important to note that the combined company is the number one supplier in auto semiconductors with a 14% share, as well as the number one supplier in global microcontrollers and a dominant supplier in mobile payments.

NXP continues getting its chips into high-growth areas such as contactless mobile payments, the Internet of Things, mobile-phone charging, increased cellular data consumption and LED lighting. Trading at a solid discount to peers, some Wall Street analysts are very positive on the faster earnings growth potential relative to its competition.

The SunTrust analysts pointed this out in the recent report:

While NXP’s valuation looks attractive relative to its historical offset vs. the S&P, other factors make the stock appear less attractive: NXP has outperformed the SOX by 4% year-to-date, consensus embeds a modest recovery in 2019 already, and end markets are skewed less favorable with high autos exposure. Despite this, we view the stock as relatively better setup than the superficial review suggests, mainly because we believe the content growth story in automotive (RADAR ADAS, V2X ADAS, BMS, and domain controllers) will help establish a more constructive outlook.

The SunTrust price target for the stock is set at $127.50. The posted consensus target is much lower at $103.16, and the stock ended last week trading at $100.59.

These three top chip stocks have been on fire. Given the fact that share prices are elevated due to the big first-quarter run, and earnings are on-deck, it may make sense to buy smaller positions now and wait for the results. Any large earnings miss or poor forward guidance could result in some serious selling, and while the SunTrust analysts like all three into earnings, surprises can happen.