Semiconductor stocks have delivered wildly varying performances this year. Chip equipment makers such as Micron (MU), FairChild (FCS) and Intel (INTC) having a really bumpy ride while specialized chip equipment manufacturers have generally been having an easier time.
With PC sales seeing one of the worst declines in recent history, PC and server chip makers are amongst the hardest hit in the sector. It’s thus advisable to avoid semiconductor stocks with a heavy exposure to this highly cyclical industry.
MU stock is down 48% year-to-date in what is shaping up to be the company’s annus horribilis, while INTC stock is down 22% YTD. But that doesn’t mean there’s nothing to like among semiconductor stocks.
Though the Philadelphia Semiconductor Index (SOX) is down 7% this year, it’s still possible to find some winners in the sector.
Here are some of the better-performing semiconductor stocks for your portfolio.
Semiconductor Stocks: Ambarella (AMBA)
Market Cap: $3.9 billion
YTD Return: 137%
Ambarella (AMBA) appears poised to become a household name courtesy of its association with GoPro, the high-performance video photography equipment manufacturer, as well as its peerless share performance compared to other semiconductor stocks.
One of InvestorPlace’s Best Stocks for 2015, Ambarella manufactures the chips that power GoPro cameras, and with the cameras flying off the shelves — as evidenced by GoPro’s mid-double digits growth — the company’s future seems secure.
Ambarella’s own growth has been just as impressive as GoPro’s — with revenues up 74% during the latest quarter. The company is growing from a small revenue base of around $50 million per quarter, which makes comps easier. But that revenue base might get a big boost from sales of video processors used in consumer drones.
DJI’s highly popular Phantom 3 drones use Ambarella’s video processors. Pac Crest has projected that drone-related SoC sales will account for more than 10% of Ambarella’s top line for the first time during the current quarter.
Ambarella shares sport a steep price-to-sales ratio of 16. Despite the pricey shares and the huge rally, the company’s excellent growth opportunities makes it worth investing in.
Semiconductor Stocks: Skyworks Solution (SWKS)
Market Cap: $18.8 billion
YTD Return: 29%
Skyworks Solution (SWKS) manufactures semiconductor chips that refine analog signals in smartphones. The company is a major supplier to Samsung (SSNLF) and smartphone king Apple (AAPL), which accounts for about 25% of its revenue.
Skyworks manufactures chips that can be customized to fit different processor requirements. The increasing penetration of 4G/LTE networks around the world is playing into Skyworks’ hands: RF content in 4G smartphones is up to five times that in 3G smartphones.
And strong sales by Apple’s and Samsung’s leading smartphones have been helping Skyworks Solutions maintain blistering growth — 58% and 38% during the past two quarters. Other semiconductor stocks envy that kind of growth.
Trading at a P/E ratio of 24 and a price-to-sales ratio of 6, Skyworks Solutions appear fairly valued compared to many semiconductor stocks and is a good long-term bet for healthy gains.
Avago Technologies (AVGO)
Market Cap: $33 billion
YTD Return: 24%
Just like Skyworks Solutions, Avago Technologies (AVGO) supplies RF components to the smartphone industry. But what has been attracting investor attention is the company’s hunger for mergers and consolidations in the highly competitive industry.
The company’s acquisitive appetite, however, is not yet sated and Avago is now looking to gobble up Marvell Technologies as well. The Marvell deal will give Avago a strong foot in the WiFi/Bluetooth and Ethernet switching market.
Avago shares sport a low PEG ratio of 0.6, which suggests the shares could be undervalued.
As of this writing, Brian Wu did not own any of the aforementioned securities.
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