Top Cyclical/Value Ideas
Analog Devices Inc. (NASDAQ: ADI) stock continues to benefit from an increase in information technology and 5G spending. It is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal-processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide.
The company offers signal-processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.
Analog Devices has among the best end-market exposure, with high communications and aerospace/defense market exposure, in addition to offering investors a powerful 5G content growth story. Plus, acquisitions over the past few years like Linear Technology and Hittite Microwave should provide revenue and additional cost synergies that are still coming.
The analysts have been fans for years and said this:
Our constructive view on the company is principally owing to the company’s ongoing alignment with our industrialization of semis view. That is, the company can create significant shareholder value by transitioning its targets from safety-oriented metrics like gross processing margins and net cash, to growth-oriented metrics like sales growth, EPS growth, and free-cash-flow growth.
Analog Devices stock investors receive a 1.82% dividend. The $136 Truist price target is less than the $139.35 consensus target and the most recent close at $136.27.
Microchip Technology Inc. (NASDAQ: MCHP) is a huge Internet of Things benefactor and shares have performed very well recently. This leading provider of microcontroller, mixed-signal, analog and flash-IP solutions provides low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.
The company acquired Microsemi in June of 2018, and SunTrust believes that purchase and earlier acquisitions afford Microchip Technology ongoing mergers and acquisitions linked upside potential from cross-selling (to boost sales) and manufacturing synergies (to reduce costs).
Truist said this about the company and the ongoing acquisition benefits:
We believe that Microchips sales, margins, and EPS are somewhat more levered to the cyclical stabilization / recovery that is now upon us than many peers owing to its relatively more vertically integrated manufacturing network, significant channel inventory reduction over the last seven quarters, and elevated financial leverage. We believe Microsemi and earlier acquisitions afford the company ongoing M&A-linked upside potential from cross-selling (to boost sales) and manufacturing synergies (to reduce costs).
Investors receive a 1.19% dividend. Truist has set a $145 price target. The consensus target is $136.19, and Microchip Technology stock closed at $126.15 on Friday.
NXP Semiconductors N.V. (NASDAQ: NXPI) is still considered a top play for investors looking for a chip stock with Internet of Things exposure. It 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. The Truist team agrees:
We believe NXP has revenue drivers that are not broad-based macro-driven, but rather company-specific product cycles developed by an engaged management team, and margin expansion drivers that are under-valued by investors. Cyclically, we see improving trends in Automotive, Industrial/IoT, and Mobile end-markets. Idiosyncratic product cycles abound, including in automotive (Radar, display, BMS, UWB, etc.), IoT (APU/Wi-Fi), and mobile (payment & UWB). It’s these product cycles that back our thesis, and encourage a robust view on 2021.
The Truist price target is $165. The consensus target is $155.40, and NXP Semiconductors stock ended last week at $146.49.
The demand for semiconductors in almost every segment from industrial and automotive to smartphones, gaming consoles, computers, laptops and so much more is keeping sequential growth rising year after year. Plus, the potential for mergers and acquisitions always remains at the forefront. All these stocks are great ideas for aggressive growth investors looking to have or add to positions in the space.