Deutsche Bank Sees Solid Value in Battered Semiconductor Stocks
Technology investors have been well rewarded over the past five years as the so-called FANG stocks drove not only technology outperformance but index outperformance as well. Like all good things, this may be coming to an end as the FANG stocks (Facebook, Amazon, Netflix and Google) have been under tremendous pressure from politicians in Washington, D.C., with some even calling for the breakup of the mega capitalization giants.
Trade issues and tariffs also have weighed heavily on the semiconductor sector, which dropped a stunning 20% between the end of April and the end of May. While the sector has rebounded some, a big earnings miss recently at a bellwether stock has kept a lid on prices. Toss in the fact that the U.S. Department of Commerce barred five more Chinese firms from buying U.S. parts last Friday
A new Deutsche Bank report remains very cautious on the semiconductors, but the analysts do see some bright spots and noted this:
Overall, it is clear that the semiconductor industry is facing headwinds across almost every end market, as revenue growth to be sub-seasonal, inventories have yet to be worked down, and a bottom has yet to be found across most end markets. Overall, we believe fundamentals in the semiconductor space continue to be challenged across all facets, as corroborated by our recent checks in Asia, elevated inventory levels and ongoing trade tensions with China. As such we remain selective in the semiconductor sector.
While the analysts are selective, five top stocks remain Buy rated, and all are offering some of the best entry points in some time.
This stock was absolutely hammered after the company recently cut revenue guidance for the year. 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 receive a very solid 3.80% dividend. Deutsche Bank has a $315 price target on the shares, while the Wall Street consensus price target is slightly higher at $316.61. The stock closed Friday’s trading at $273.99 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.
The Deutsche Bank price target for the stock is $55, and the consensus target was last seen at $49.75. The stock closed at $49.99 a share on Friday.