The stock market got absolutely hammered on Monday after fears of a Greek default and subsequent unceremonious eurozone exit roiled investors. Wall Street was a sea of red, and NXP Semiconductors (NXPI) was no exception. Shares of the Dutch chipmaker slid 3% on Monday, and NXPI stock is currently down 13% from its high of $114 earlier this year.
Bargain-hunting investors can thank their lucky stars for that, because NXPI looks like a real steal at these levels.
Despite rallying 27% in 2015 and rallying 46% in the last year, savvy investors can still pick up NXPI stock at bargain-bin prices. Very few stocks in the stock market today are attractive both qualitatively and quantitatively, but this is one of them.
NXPI Stock: The Qualitative
NXP Semiconductors is a leading chipmaker behind the chip-and-pin, or EMV, technology in credit cards. While old school credit cards use a magnetic strip to swipe for in-store purchases, EMV technology uses a physical chip. A 2014 InvestorPlace article on the technology explains the security benefits of the method:
“…unlike the cards we’re using now that use the same unencrypted PIN numbers for each transaction, EMV cards generate a unique security code each time they’re used. So, a hacker can steal it, but won’t be able to use it. Another difference is that you swipe a card with a magnetic strip, but EMV cards enter a terminal, at which point you enter a PIN or sign your name.”
Come October, retailers will become financially responsible for fraudulent transactions if they don’t adopt to EMV readers, making rapid adoption likely and creating a beautiful narrative for NXPI stock.
The story gets better though. NXPI also has a comfy relationship with Apple (AAPL), and its chips are featured in the nascent but potentially groundbreaking Apple Pay technology, as well as the Apple Watch. I’ll let the Wall Street Journal summarize another bullish catalyst, the company’s proposed acquisition of another chipmaker, Freescale Semiconductor (FSL):
“The $11.8 billion deal with U.S. chip company Freescale would create the fourth largest smart chip company in the world, worth more than $30 billion, NXP says, strongly improving the company’s positioning in the business of the ‘Internet of Things.’”
The deal is subject to regulatory approval but NXPI expects the deal to close in the second half of this year.
NXPI: The Quantitative
Hard to deny, that’s a pretty nice qualitative outlook. But what about the numbers? Well, from a trading perspective, the recent pullback is giving bargain-hunters a really nice entry point.
Technical traders will note that the relative strength index, or RSI, for NXPI stock is 33, just barely above the 30 level which indicates the stock is oversold:
RSI of 33.76 is displayed near the top of the chart
And while looking at the trailing price-to-earnings of NXPI could lead you to think the stock’s overpriced — its 74 P/E dwarfs the 23 and 58 multiples of competitors Infineon Technologies (IFNNY) and STMicroelectronics (STM) — its forward P/E is 15. By that measure, even Texas Instuments (TXN) with its forward P/E of 17 looks pricey.
I don’t pretend to have a crystal ball, but I’m not just throwing darts at a wall of tickers, either. With a bevy of qualitative and quantitative catalysts at its back, NXPI stock is a really compelling buy after the recent pullback, at least in my book.
As of this writing, John Divine was long shares of AAPL stock, and is considering initiating a long position in NXPI after conducting research for this article. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
