These chip stocks are set to capitalize in the current market.
Until a few months ago, technology was the hottest sector of the market. And semiconductor stocks in particular had been on fire. The economic effects of the COVID-19 pandemic caused unprecedented demand for electronic devices of all sorts. Vendors saw record demand across a variety of fields, including automobiles, consumer electronics and data servers. However, the semiconductor industry now has to adapt to a variety of challenges. These include supply chain issues, rising tensions between China and Taiwan, and a rapidly changing demand landscape as the stay-at-home tail wind fades. Unsurprisingly, semiconductor shares have sold off as part of the broader tech wreck. But that also creates more opportunity in the industry. With that in mind, here are seven of the best semiconductor stocks to buy for 2022.
Intel Corp. (ticker: INTC)
Intel is one of the best semiconductor stocks to buy for a few simple reasons, but importantly, it’s one of the most compelling ways to get broad-based exposure to the semiconductor industry. The company’s main business, selling PC and server chips, remains a cash cow. For years, it was considered a stagnant industry, but the pandemic gave a big boost to sales as people purchased machines for working and studying from home. The company has also invested heavily in other lines of semiconductor business over the years. One of these, the autonomous vehicles and self-driving unit Mobileye, is set to be sold this year, generating a profit for Intel that could number in the tens of billions of dollars. In the meantime, INTC stock is one of the cheapest blue-chip stocks around. Shares are selling for about 14 times forward earnings and offer a 3% dividend yield.
Texas Instruments Inc. (TXN)
Shares of Texas Instruments fell 10% recently following its earnings report. While earnings were good, Texas Instruments announced a massive ramp-up of capital expenditures for new equipment and related items. This caused a swift reaction from traders. That drop is an opportunity, however. Credit Suisse analyst John Pitzer summed up the situation in a recent investor report, writing, “Owners delight, renters take flight,” in reference to Texas Instruments’ aggressive investment plans. While the heavy spending will lower free cash flow and dividend growth in the short term, it positions the firm for another decade of dominance in the analog semiconductor space. For investors who aren’t just renting TXN stock for the next few months, the future appears brighter than ever.
Analog Devices Inc. (ADI)
Analog Devices is another analog semiconductor firm, sharing a lot of the positive features of Texas Instruments. Analog derives most of its revenue from a vast array of niche products. This lack of revenue concentration protects the business model from competition or sudden technological obsolescence. It also gives Analog exposure to a wide variety of promising technological trends such as connected cars, the “internet of things” and remote monitoring. Analog shares are trading for about 21 times estimates of this year’s earnings and 19 times 2023’s projected earnings. The company is also intriguing as an income play. It has grown its dividend for 18 years in a row, and management pays out nearly all of its cash flow as dividends and share buybacks.
United Microelectronics Corp. (UMC)
United Microelectronics is a Taiwanese firm that is integral to the global semiconductor supply chain. UMC is a semiconductor wafer foundry with operations in Taiwan and across Asia, Europe and the United States. While the company may not be a household name, it has grown to a market capitalization of $25 billion. It’s in the right place at the right time to benefit from the semiconductor super-cycle — a sustained wave of strong demand. The supply chain chaos over the past 18 months has made it crystal clear that countries need to build more semiconductor facilities locally. It’s now a national security concern. As semiconductor capital expenditures surge, UMC is a natural winner. It provides the basic foundry operations along with adjacent services such as circuit design, assembly and testing services. Shares trade near 10 times forward earnings, and that bargain price makes it one of the best semiconductor stocks to buy for 2022.
Camtek Ltd. (CAMT)
Like UMC, Camtek offers investors a way to ride the growth of the semiconductor industry as a whole. That’s because Camtek supplies inspection and metrology devices and services to semiconductor manufacturing companies. In other words, Camtek is a sort of “picks and shovels” vehicle for the sector. As companies like Intel and Texas Instruments pour tens of billions of dollars into new capital projects, it will increase the amount of money flowing through all parts of the supply chain. Semiconductor testing is hardly the most glamorous part of the value chain. However, it’s integral to ramping up all these new semiconductor plants that are being developed now. Camtek has tripled earnings since 2018, and analysts see further growth ahead. Meanwhile, shares trade for just 22 times earnings.
Ambarella Inc. (AMBA)
It’s hard to go wrong with broadly diversified semiconductor companies that can ride the industry-wide wave. Some of the appeal with the sector comes with niche players, however. Enter Ambarella. It makes semiconductor chips for low-power, high-definition video compression applications. Think of uses such as computer vision, security, autonomous driving and consumer electronics. Products such as Alphabet Inc.’s (GOOG, GOOGL) Google Nest and GoPro Inc. (GPRO) cameras have used Ambarella’s technology. Shares soared in 2020 and 2021 around excitement related to potential autonomous driving applications. Ambarella shares are now down 32% year to date, however, as speculative growth shares have plunged. That makes AMBA stock an interesting buy-the-dip candidate here as interest in this sort of video processing technology will only increase over time.
Monolithic Power Systems Inc. (MPWR)
Monolithic Power Systems has been one of the most incredible semiconductor growth stories of the past 20 years. The company launched around the turn of the century with a single semiconductor product line for notebooks and with infinitesimal revenue. In the later 2000s, it added chips for televisions and wireless applications. In the early 2010s, revenue hit $200 million a year and Monolithic started investing in broader fields such as chips for automobiles and data servers. Fast forward a decade, and revenue has topped $1 billion annually as the firm goes into product lines for e-commerce and battery management. Shares are still expensive at 47 times forward earnings, but the stock is down sharply in recent weeks. That gives investors a chance to own this fantastic long-term growth story at a more accessible starting price.
7 best semiconductor stocks to buy for 2022:
— Intel Corp. (INTC)
— Texas Instruments Inc. (TXN)
— Analog Devices Inc. (ADI)
— United Microelectronics Corp. (UMC)
— Camtek Ltd. (CAMT)
— Ambarella Inc. (AMBA)
— Monolithic Power Systems Inc. (MPWR)
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7 Best Semiconductor Stocks to Buy for 2022 originally appeared on usnews.com
Update 02/08/22: This story was published at an earlier date and has been updated with new information.
