Why This Wall Street Firm Is Still Very Bullish on Semiconductors for 2022

One of the biggest financial and economic stories of this year has been the supply chain issues that have plagued business and consumers from top to bottom in virtually every sector. While reasons to explain this ongoing problem are numerous, the reality is that things are slowly improving. In 2022, we should see a reprieve from the current status.

One segment that has been in the spotlight is the semiconductor arena, and the lack of supply for everybody from automobile makers to technology companies has handcuffed production for most of 2021. In a new report from the semiconductor team at Truist Securities, while acknowledging the strong gains the sector has made over the past few years, they feel there is still positive upside potential to current estimates.

Their report noted this:

We remain bullish on semi stocks owing to our expectation for fundamental upside potential over the next few quarters. The fundamental cycle is past peak and fading, and stocks have delivered robust returns. Still, we expect revenue growth in 2022 to modestly exceed the consensus +9% view. Supply remains constrained, but is growing modestly. Demand is robust, and will benefit from fiscal stimulus, supporting upside.

Nine top companies are the firm’s favorite ideas for 2022, and here we focus on four of the sector giants that are Buy-rated at Truist Securities. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Analog Devices

This stock could very well continue to benefit from the increase in information technology and 5G spending. Analog Devices Inc. (NASDAQ: ADI) 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 had this to say:

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 GPM and net cash, to growth-oriented metrics like sales growth, EPS growth, and free-cash-flow growth.

Analog Devices stock investors receive a 1.55% dividend. Truist Securities has a $206 price target. The consensus target is slightly higher at $207.36, and shares closed on Tuesday at $176.28.

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