As most stocks across the market took a hammering on Monday in the face of growing concerns about the coronavirus epidemic, the astute investor would have picked up on the buying opportunity emerging in the shares of NXP Semiconductors (NASDAQ: NXPI). In recent years the company has made a concerted effort to pivot towards the 5G market and its efforts are clearly yielding results. Since the start of 2019, they had tacked on over 100% in value through the start of this month and were trading at all-time highs.
On the 3rd of February this year, the company released its Q4 earnings which topped analyst expectations even though revenue contracted year on year. Management were confident that this was only a minor hiccup as they also raised forward guidance and Wall Street was only too happy to keep the buying spree going. Excitement is growing for the launch of 5G and NXP appears to be in favor as a semiconductor company well-positioned to capture the expected growth. This week alone, we’ve seen smartphone makers HTC and Sony announce their 5G models will be available in 2020, while Verizon has said that it will double the number of cities with its 5G service this year.
NXP’s CEO, Richard Clemmer, said with this month’s earnings release that they “delivered full-year revenue of $8.88 billion, a decline of 6 percent year-on-year, against a very challenging semiconductor industry backdrop. As we look forward to 2020, we are increasingly confident that the demand trends within our end markets are beginning to moderately improve. Notwithstanding the operating environment we experienced in 2019, NXP drove improved profitability, strong free cash flow generation, and continued to successfully execute our strategy within our target markets.” Positive words indeed.
Ahead of the Pack
The confidence that management had to raise guidance was preceded by the likes of Bank of America boosting their price target for the stock in December with a bullish Buy rating.
Even compared to the other big names that are arguably more well known in the 5G game, Qualcomm (NASDAQ: QCOM) and Intel (NASDAQ: INTC), NXP has been the standout performer since it IPO’d in 2010. Its shares are up nearly 800% in less than a decade while Intel’s are up 200% and Qualcomm’s are up 115%.
The dip that NXP’s stock saw on Monday wasn’t company-specific and simply more of risk-off sentiment across the wider market. Both Intel and Qualcomm took a hefty haircut during the session while Apple (NASDAQ: AAPL) also caught some heat as reports came through of their Chinese based manufacturers and factories being shut indefinitely as authorities struggle to contain the outbreak.
Investors looking to make a 5G trade would do well to add NXP to their watchlist. From a technical standpoint, Monday’s drop brings shares down towards a rising support trend that’s been in play since the start of this rally in December 2018. In times of general market weakness that pulls down individual names, these kinds of opportunities can pop up as ideal entry points. As a bonus, when we look at the daily chart we can see that the RSI is close to 30 having been almost 80 less than a month ago. This is a serious swing without any NXP centric news and suggests that the sell-off is becoming overdone.
Assuming the coronavirus doesn’t reach pandemic proportions, then stocks with solid fundamentals and impressive internal momentum stand poised to bounce back the hardest as the virus retreats. NXP has the look and the feel of one of those and investors would do well to keep an eye on it.