Typically, when investors think of uses for semiconductors, personal computers, laptops, smartphones and items of that nature come to mind. The reality is that automobiles are using ever more chips for a host of different applications that are available in cars now. With everything in cars from Bluetooth to voice applications, from sensors to GPS and more, the use of semiconductors looks poised to continue to rise.
A new research report from Mark Lipacis, the very solid semiconductor analyst at Jefferies, cites numerous bullish trends that he expects to provide a tailwind for some of the top companies in the industry. He noted this:
We continue to see a favorable backdrop for auto-semi plays, and believe a potential suburban migration could add another secular driver. We continue to see auto-semis as a beneficiary of an inventory restock in the second half of 2020, but we also believe that early signals suggest COVID-19 may translate to a secular shift in commuting and car buying behavior. In addition, we highlight that an incremental uptick in suburban home demand would create a tailwind, as census data shows that suburban homes have 0.2-to-1.5 more cars per home than urban homes.
Jefferies is very bullish on five stocks. All are rated Buy and make sense for aggressive investors looking to have a semiconductor tech weighting. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Maxim Integrated Products
This company supplies some chips for the Samsung Galaxy line. Maxim Integrated Products Inc. (NASDAQ: MXIM) designs, develops, manufactures and markets various linear and mixed-signal integrated circuits (ICs) worldwide. The company also provides a range of high-frequency process technologies and capabilities for use in custom designs. It primarily serves automotive, communications and data center, computing, consumer and industrial markets.
The company’s dividend yield is near its five-year average, and the company has grown its dividend in each of the past six years. The analyst’s favorable view is based on expectations of continued strong growth in automotive with the potential for double-digit year-over-year growth and continued strength in its industrial segment.
Shareholders receive a 3.1% dividend. The Jefferies price objective for the shares is $65, and the Wall Street consensus target price is $59.24. Maxim Integrated Products stock closed on Tuesday at $61.51 a share.
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 even LED lighting. With shares trading at a solid discount to peers, some Wall Street analysts are very positive on the faster earnings growth potential relative to its competition. Jefferies agrees and recently noted this:
We revisited our prior work on semis, and we continue to expect WFH and Analog/MCU plays in semis will mean revert. While we have already begun to see this start, we highlight Auto-semi plays in particular, as US auto inventories have declined 28% from peak levels in March and forecasts from the group appear to be 6-36% below the longer term trendline in the second quarter to the fourth quarter of 2020. In addition, we point out that COVID-19 may ultimately add additional car demand,
Jefferies has a $127 price target, and the consensus target is $119.23. NXP Semiconductor stock closed most recently at $151.43.
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