3 Great Semiconductor Stocks to Buy Now

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semiconductor stocks - 3 Great Semiconductor Stocks to Buy Now

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[Editor’s note: This story was previously published in August 2018. It has since been updated and republished.]

It’s not hard to see why investors have been worried about chip makers in recent months. Several of the trends that had powered them in recent quarters and years are starting to fade. The group of chip makers tied to Apple (NASDAQ:AAPL), for example, have lost momentum as the global smartphone market looks increasingly saturated. Expectations for other trends that had been powering increased semiconductor demand, such as cryptocurrencies and Internet of Things (IoT), are being reigned in.

On top of that, until late last year, semiconductor stocks were among the hottest groups in the market since 2016. A pause in their momentum is not a big surprise. That said, given the recent underperformance of the sector, it could be time to go fishing for a little value. And yes, that means steering clear of the controversial and expensive high-fliers like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) in search of more compelling value.

Here are three such semiconductor stocks to buy today.

Semiconductor Stocks: Texas Instruments (TXN)

Texas Instruments (NASDAQ:TXN) suffered from a bit of unwanted publicity last year. Its new CEO, Brian Crutcher, resigned due to personal conduct issues less than two months after being promoted to the role.

Texas Instruments has reinstated long-time top executive Rich Templeton, who guided the company to great prosperity in recent years, to the CEO role indefinitely. While the management shake-up may have made some investors nervous, TXN’s core business keeps on humming. Last quarter, its earnings per share beat expectations, although its top line came in slightly below analysts’ consensus outlook.

With the string of earnings-per-share growth in recent years, Texas Instruments now tops $100 billion in market cap. It dominates its niche: analog chips that process real-world measurable data for digital applications. It continues building out its patent library, manufacturing capabilities and product lines with additional acquisitions. As such, it has achieved massive scale and can continue plugging more products into its platform.

Texas Instruments has its fingers in many pies, with its efforts in automotive and communications chips showing particular promise given current market trends. Additionally, the company has more security and recurring revenue than most chipmakers, as its products tend to have much longer lifecycles than the sorts of designs that go into hot consumer products such as phones.

TXN stock has soared in recent years; it’s up from $50 to more than $100 just since early 2016. But the fun isn’t over yet.

TXN stock sells for 18 times its forward earnings. Combine that with its 15% projected five-year EPS growth rate, and TXN is a reasonably priced tech growth company. On top of that, the company pays a market-beating dividend yield of 2.85%.

Semiconductor Stocks: Intel (INTC)

AMD’s recent gains have, to some extent, been Intel’s (NASDAQ:INTC) pain. While AMD stock has soared over the last year, INTC stock is up less than 10% during that time.

The comparative weakness of INTC stock is a buying opportunity.

The market has grown concerned about repeated delays with Intel’s line of 10nm technology. For the first time in many years, it appears that AMD is reaching technological parity with Intel across both the server and laptop markets. AMD’s market share could draw much closer to that of Intel in coming quarters.

However, don’t count Intel out anytime soon. The company still has far more resources and R&D prowess than AMD. While its delays with this product cycle have been embarrassing, they can and will be fixed. And as it is, there is more to performance than just the nanometer size of chips — Intel’s current generation of products are still highly competitive.

INTC stock is selling at 12 times its trailing and 11 times its forward earnings. The company’s dividend is also close to 2.5%.

Take advantage of temporary competitive issues against AMD to score INTC stock at a nice price.

Semiconductor Stocks: Qualcomm (QCOM)

Qualcomm (NASDAQ:QCOM), like Texas Instruments, has also had some excitement in recent months. Qualcomm finally abandoned its long-running attempt to take over NXP Semiconductors (NASDAQ:NXPI). This acquisition would have broadly diversified Qualcomm’s business. Investors have looked nervously at Qualcomm’s concentration in patent-based revenues as its own chips have fallen prey, in some cases, to OEM competition.

However, there was also a good deal of execution risk in the proposed mega-merger. So China’s influence in scuttling the deal could come out as a plus. As it is, Qualcomm still gets huge royalties off of 3G and 4G technology, and it has an enviable position in the upcoming rollout of 5G.

Shareholders will get a concentrated ownership position on these assets. That’s because Qualcomm — now that the NXP deal is dead — announced a gigantic buyback of up to $30 billion by the end of 2019.

Considering Qualcomm’s current $64 billion market cap, we’re talking about the company retiring something along the lines of over 40% of outstanding QCOM stock. On top of that, QCOM stock offers a large dividend yield, currently almost 4.7%, making it one of the top income plays in the tech space.  The all-time high of QCOM stock is up around $80, offering substantial upside as a target, especially as the rest of its buyback kicks in.

As of this writing, Ian Bezek owned shares of TXN, INTC and QCOM stock.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


Article printed from InvestorPlace Media, https://investorplace.com/2019/02/3-great-semiconductor-stocks-to-buy-now/.

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