Semiconductor stocks are sliding, making these names dip-buying opportunities.
Semiconductors have started off 2022 on the wrong foot. Through early April, the industry barometer VanEck Vectors Semiconductor ETF (ticker: SMH) is now down close to 20% year to date. Some of that is surely due to the broader headwinds for the technology sector. However, there are specific concerns as well. Semiconductors is a cyclical industry, and things may be turning down after a massive growth year in 2021. Also, valuations reached unprecedented levels on high-flying momentum names such as Nvidia Corp. (NVDA), and it’s easy to understand why traders may be taking profits there. That said, there are still opportunities for investors in this industry; here are eight of the best semiconductor stocks to buy in 2022.
Intel Corp. (INTC)
Intel isn’t one of the more glamorous semiconductor names out there today. The company has lost market share to more nimble rivals such as Advanced Micro Devices Inc. (AMD) in recent years. However, Intel is still the dominant player in its main industries and generates prodigious amounts of cash flow from operations. This allows it to spend $15 billion per year on research and development. With that sort of budget, never count out Intel’s ability to innovate. The company is now investing heavily in manufacturing capacity of its own, which should help it in a world where elaborate supply chains have become increasingly tenuous. And for a 2022 catalyst, Intel is looking to spin off its autonomous driving business, Mobileye, in a deal that could generate a profit of tens of billions of dollars.
Micron Technology Inc. (MU)
Micron Technology is a leader in semiconductor products for the memory and storage markets. Micron operates in a market prone to exceptional booms and busts. One year, Micron can be earning gigantic sums and see those profits nearly disappear entirely within 12 to 24 months. Thus, investors are understandably cautious about investing in Micron even when the stock seems cheap, as it does now, with shares at just eight times forward earnings. What makes Micron more attractive now is that much of the competition in memory chips has either merged or gone out of business. The industry should be more rational now in terms of capacity and pricing power. Sure, earnings will probably slow as the surge in consumer electronics sales from 2021 ends. However, Micron is already down more than 20% off its highs to account for that fact.
Texas Instruments Inc. (TXN)
Texas Instruments is a leading analog semiconductor firm. It specializes in making chips which turn real-world inputs such as weather conditions into digital data. This is an attractive part of the semiconductor market, since it is slower-moving than, say, chips for smartphones. Texas Instruments has an incredibly broad catalog of products for niche applications, which generally shields it from competition. It’s also riding several major tech trends such as connected cars, the Internet of Things, and remote monitoring and security. All these new smart devices need lots of sensors and real-world data to perform their designed functions. Automotive is a particularly big opportunity for Texas Instruments, as smart and self-driving cars need tons of information about their surroundings to navigate safely.
Qualcomm Inc. (QCOM)
Speaking of cars, Qualcomm is making a major move into that market. Qualcomm just completed its acquisition of Arriver. That firm is known for its driver-assistance technology. Qualcomm will include Arriver’s driver-assistance functionality with Qualcomm’s broader Snapdragon Ride Platform. With its new self-driving functionality, the Snapdragon system offers a full suite of services. That’s because it already operates car-to-cloud functions, the cockpit platform for things such as navigation, displays and audio, and the 5G connectivity unit that helps a car connect to Wi-Fi, Bluetooth and electric vehicle charging. Qualcomm has long been a cash cow due to its intellectual property around 3G and 4G connectivity. Now, the company is proactively expanding its business into adjacent fields. Shares are down about 25% from recent highs.
Wolfspeed Inc. (WOLF)
Wolfspeed is a newer publicly traded semiconductor company which just completed its initial public offering, or IPO, in 2021. Shares shot up following the IPO, but have since dropped from their peak, giving investors a second chance at the company. Wolfspeed primarily provides silicon carbide and gallium nitride (GaN) materials, power devices, and radio frequency (RF) devices. That technical language masks something exciting, however. Wolfspeed focuses on making devices that waste less electricity. The company has more than 6,000 patents, and puts this technology to use in making things such as charging equipment more efficient. Wolfspeed figures to be a leader in electric vehicle charging. It’s also on-trend now as saving electricity helps firms reach their environmental, social and governance, or ESG, goals and lower costs in a world where energy is getting much more expensive.
Ambarella Inc. (AMBA)
Many semiconductor firms are focused on broad lines of products for many applications. Those tend to be safer, more conservative ways to get exposure to the industry. There’s a place for niche players, however, who can post much more dramatic gains if and when their category takes off. Ambarella is one such example. It focuses on creating semiconductor chips for low-power, high-definition video compression applications. These chips ultimately go into things such as computer vision, autonomous driving, security systems, and consumer electronics. Example customers include the Google Nest and GoPro Inc. (GPRO) cameras which use Ambarella’s technology. AMBA stock soared in 2020 and 2021. However, shares are now down by more than half since November. That could represent a good dip-buying opportunity, especially as analysts see the company returning to profitability in 2022.
Applied Materials Inc. (AMAT)
Applied Materials is the leading player in the field of semiconductor fabrication tools. This has been an incredibly hot sector over the past few years due to the global semiconductor shortage. Semiconductor firms have raced to put up new capacity, and in doing so, given Applied Materials a ton of additional business. The market is clearly worried that this is going to go away as AMAT stock skids to near its 52-week lows. However, where there may certainly be a slowdown in semiconductor demand, don’t count out industry capital expenditures just yet. With the supply chain crisis and increasing efforts to put key industries with national security interests back in America, there is still high demand for new semiconductor plants even as the industry slows down from a record 2021. Applied Materials’ earnings should hold up better than people think, and shares are now selling for just 15 times estimated 2022 earnings.
NXP Semiconductors NV (NXPI)
NXP is a broadly diversified semiconductor firm in the analog and mixed signal chip markets. It is particularly strong in the automotive market and has a solid presence in the industrial and mobile communications spaces as well. Intriguingly, NXP also has the leading chipset for powering mobile wallets and is used by most of the major tech vendors in that space. NXP has gotten hammered in recent weeks and is approaching new 52-week lows. Morningstar’s Brian Colello sees NXPI stock as a bargain here. He believes shares should trade for 18 times 2022 earnings, which would result in a share price of $240 each. Instead, NXPI is selling at $175 and closer to 13 times 2022 earnings. Shares also offer a roughly 6% free cash flow yield at current levels, which is well above the semiconductor industry median.
8 best semiconductor stocks to buy amid a global chip shortage:
— Intel Corp. (INTC)
— Micron Technology Inc. (MU)
— Texas Instruments Inc. (TXN)
— Qualcomm Inc. (QCOM)
— Wolfspeed Inc. (WOLF)
— Ambarella Inc. (AMBA)
— Applied Materials Inc. (AMAT)
— NXP Semiconductors NV (NXPI)
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8 Best Semiconductor Stocks to Buy Amid a Global Chip Shortage originally appeared on usnews.com
