Chipmakers On Fire: 3 Under-the-Radar Stocks To Win
Zacks Investment Research | Mar 22, 2019 07:58AM ET
After a torrid 2018, chipmakers bounced back this year. Chip stocks collectively notched their best start to a year, boosting investors’ sentiment amid lingering global growth concerns. The VanEck Vectors Semiconductor, a fund that mostly tracks semiconductor stocks, has soared more than 20% since the beginning of this year, the best first-quarter performance since the fund’s inception in 2000. The fund easily outperformed the broader S&P 500’S 12% rally so far this year. Chipmakers, in fact, have posted gains in 10 out of the last 12 weeks.
Trade dispute between United States and China along with worries about China’s economic well-being affected a few of the semiconductor industry bigwigs. Weak iPhone sales along with deceleration in cryptocurrency mining ventures further raised questions about weakening demand for chips. But, investors saw promising trends in the semiconductor industry this year, which eventually helped chip stocks climb more than 30% since the recent low touched on Dec 26, 2018.
The Fed’s patient stance with interest rate hikes has bolstered high-flying names such as Advanced Micro Devices, Inc. (NASDAQ:AMD) and Micron Technology, Inc. (NASDAQ:MU) . These companies have had the best start to a year. After all, rising rates do affect these stocks as investors adjust to a new environment.
By the way, chipmakers have become more realistic about growth trends. The industry has recognized a glut of chips in the market and it’s time to curb production. And that’s exactly what Micron CEO Sanjay Mehrotra acknowledged and pledged to cut 5% of chip production. This lifted Micron’s shares 9.6% to $43.99 on Mar 21, after touching an intraday high of $44.21. Largely, the PHLX Semiconductor Index increased 3.5% and closed at 1,441.83, just short of its record of 1,445.90 set on Mar 12.
To top it, NVIDIA Corporation’s (NASDAQ:NVDA) $6.8-billion bid to acquire Israeli chipmaker Mellanox helped renew investors’ faith on the beaten-down sector. If the deal is sealed, it would be Nvidia’s biggest and will also strengthen its hold in the growing data center market.
As a matter of fact, it’s the data center market that first and foremost boosted chip stocks this year. Adding to the optimism is an array of new technological trends like 5G wireless, artificial intelligence, self-driving cars and the Internet of Things.
Some investors are seeing even more positives for these semiconductor stocks, citing consumer are on a solid footing, especially, in the United States. Consumer confidence bounced back in February on a healthy labor market and an end to the U.S. government’s longest shutdown in history. Consumers’ assessment of current conditions improved and expectations about the future strengthened, indicating sturdy economic growth.
3 Semiconductor Stocks to Gain
Thanks to the aforesaid bullish trends, chip heavyweights will surely garner most of the attention from investors. But, there are some under-the-radar stocks whose shares have seen superb growth for quite some time. Here are some of them that are poised to gain further in the near term.
Xilinx
Xilinx, Inc. (NASDAQ:XLNX) designs and develops programmable devices and associated technologies. The San Jose, CA-based company has been progressing by leaps and bounds from healthy sales of chips for data centers as well as 5G wireless networks.
Xilinx has also seen solid demand for its other 5G products, including the one-chip combination of analog radio chips and digital processors. Tristan Gerra, a senior research analyst with RW Baird, added that “we think Xilinx will continue to see design win activity for 5G in multiple years ahead.”
Xilinx currently has a Zacks Rank #1 (Strong Buy). In the past 60 days, the company has seen nine earnings estimates move north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 6.1% in the same period. You can see Zacks Investment Research
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