Key Points
- Wells Fargo picks NXP Semiconductors and Wolfspeed as its top picks in the semiconductor sector.
- NXP Semiconductors is set up for a reversal but lags behind the semiconductor industry.
- Wolfspeed is expected to ramp up production of wafers this year and could give solid guidance.
- Even so, NVIDIA remains the top pick by Wall Street, and it is the Most Upgraded name in the group.
With the chip stocks expected to begin reporting soon, the sector is coming into focus, and Wells Fargo NYSE: WFC just announced its 2 top picks. Analysts Gary Mobley chooses NXP Semiconductors NASDAQ: NXPI and Wolfspeed NASDAQ: WOLF for differing reasons. In his view, NXP Semiconductor shares lag behind the broader semiconductor industry because the analysts' consensus is too pessimistic about the 2nd half of the year and all of next year.
He sees this company rebounding sharply in the 2nd half and then outperforming in 2014 on improving demand. As for Wolfspeed, the company is expected to ramp production at its Mohawk Valley wafer fabrication facility, which has it set up to rebound.
NXP Semiconductors Could Gain Double-DIgits By Year End
The analysts are bullish on NXP Semiconductors and have this stock set up to advance, given solid results. Although the price target is down sharply compared to last year, the consensus rating has held firm at Moderate Buy, and the recent activity put a bottom in the price action. The Q4 release resulted in several price target increases, with the Marketbeat.com consensus target firming after a year of decline. The current consensus is near $189 and assumes about 10% of the upside, but many of the most recent targets are well above that.
NXP Semiconductors reports the first week of May and is expected to post a sequential and YOY decline in revenue and earnings. The analysts expect revenue to fall about 450 basis points, but the results could outperform given the strength reported by Garrett Motion NYSE: GTX. One of NXP Semiconductors' primary markets is OEM automobiles, and Garrett Motion, which also sells components to OEM automakers, issues solid preliminary results and guidance that was above expectations. The chart of NXP Semiconductors shows a bottom that could turn into a reversal, but resistance near $198 needs to be crossed.
Wolfspeed Is Oversold
Wolfspeed NASDAQ: WOLF isn’t just lagging behind the semiconductor market it has been moving opposite to it and is now oversold. The stock is trading at 3-year lows with revenue growth on the table. The company is expected to grow revenue compared to last quarter and last year, and it may also give favorable guidance given the expected production ramp. The analysts' sentiment has helped to drive the stock to its current levels, but even they, as a group, are holding the stock and see at least 20% of upside for investors.
Wolfspeed reports at the end of April, and it may see share prices increase. The caveat for investors is that a 20% gain in share price will not get the market above critical resistance levels. That level is near $80 and marks the bottom of a previous range and the top of a current range.
The Most Upgraded Chip Stock Is NVIDIA, A Much Better Choice
NVIDIA NASDAQ: NVDA is the most upgraded chip stock this year and has been at the top of Marketbeat’s Most Upgraded List for months. It’s received 45 upgrades and price target increases over the last 90 days due to stabilizing trends in legacy markets and a shift to next-gen technology by OEMs and AI. It’s rated a Moderate Buy by 38 analysts with a price target that assumes fair value at current levels.
The takeaway is the price target is trending solidly higher compared to last month and last quarter, and the most recent targets have the stock trading about 15% higher than recent action, given the proper catalyst, that puts the stock shy of all-time high levels but on track to hit new highs. That catalyst could be guidance or analysts. NVIDIA reports at the end of May. Wells Fargo rates NVIDIA at Overweight with a price target of $320 compared to the consensus of $262.
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