Semiconductor chips are seemingly everywhere these days. They are the brains behind everything from laptops and smartphones to medical devices and automobile technology.
Despite their widespread use, from an investment standpoint, it can be difficult to determine which semiconductor companies will outperform in the fast-moving world of technology. Toss in the recent global supply chain issues and the puzzle gets even harder to solve.
The PHLX Semiconductor Index is up 9% this year but there has been a wide disparity between winners and losers. For instance, Intel is up 28% and Advanced Micro Devices is down 17%. Here we highlight three semiconductor stocks that are well positioned to outperform over the next 12 months—and are well worth chipping in for.
Will Micron Report a Strong Q2?
After climbing 40% last year, Micron (NASDAQ:MU) is off to a strong start in 2021. The country's largest memory chip supplier has the wind at its back thanks to an improving DRAM (dynamic random-access memory) market which is its core business.
Micron's memory products are used in computers, cell phones, automobiles, data centers, and various industrial applications. Several of these end markets have been sources of strong demand in recent months especially data centers. As the transformation of the digital economy accelerates during the pandemic, demand for memory products should be high to support cloud computing, 5G networking, and artificial intelligence (AI) developments.
After reporting double-digit earnings growth last quarter, Micron looks poised for an encore performance when it reports second-quarter results after the close on March 31st. The Street is overwhelming bullish on Micron as most price targets are above $100 and some as high as $150. Look for another memorable earnings release and for Micron to continue its run.
Is Texas Instruments Stock a Buy?
Texas Instruments (NASDAQ:TXN) serves a lot of the same end markets as Micron (consumer electronics, communications, automotive) but is a bit more diversified. It too had a very strong report last quarter that suggested there will be more will that came from. In fact, the company posted year-over-year sales and earnings growth for the first time since the third quarter of 2018—and did so in resounding fashion with both the top and bottom line growth in the double digits.
It'll be a few weeks before Texas Instruments reports its fiscal first-quarter results (April 27th), but investors should expect the recovery theme to persist. After years of experiencing weak demand due to trade wars, tariffs, supply chain constraints, and the pandemic, Texas Instruments is seeing a strong recovery particularly in automotive. For Q1, Management guided to $3.95 billion in revenue at the midpoint which would mark another period of strong double-digit growth.
Over the last few weeks, it's been nothing but positive comments from sell-side analysts. The last eight opinions issued on Texas Instruments have been buys. This week Key Banc upgraded the stock to a 'buy' and gave it a Street-high $225 target.
Texas Instruments is also one of the most shareholder friendly semiconductor stocks as it currently offers a 2.2% dividend yield. This along with signs of a sustainable demand recovery should make Texas Instruments a tech outperformer this year.
What is a Good 5G Smartphone Play?
Last but not least, Skyworks Solutions (NASDAQ:SWKS) is another semiconductor name with outperform written all over it. That is what is has done the last couple years and is doing again this year off to a 17% advance in 2021.
The maker of analog semiconductors for mobile phones, medical devices, automated factories, and much more, had a monster Q1 performance that propelled the stock to a fresh record high. Much of the massive top line beat was derived from the highly successful launch of Apple's 5G smartphone, a product that includes multiple Skyworks components. Given that the Apple 5G upgrade cycle is still in its early stages, Skyworks is positioned to see strong growth ahead from this key customer alone.
Skyworks also has a potentially bullish technical pattern in its favor. Last week a symmetrical continuation triangle formed on the daily chart with the stock trading around $182. The pattern points to a possible run to the $213 to $220 range by the end of April.
The Street is a little more cautious on Skyworks given the run it has had and its premium valuation. Last month Goldman Sachs downgraded the stock to a hold saying it still likes the long-term growth narrative but feels it is fairly valued here.
It may be a price worth paying for, however, given that Skyworks has entered correction territory, a place it historically doesn't spend much time in. Skyworks next wave of growth is expected to come from some of the highest growth areas of tech world such as wearable devices, the connected home, and smart energy. Combined with its other growth markets, this should keep Skyworks stock skyward and outperforming its peers over the long haul.
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