So far, 2020 is without any doubt the year of tech stocks — and that has highlighted semiconductor stocks to buy as well.
From the collapse of almost every stock back in March 2020, when it looked like it was going to be a catastrophic year for U.S. stocks, tech stocks rebounded quicker than others. Some reached the level of excessive valuation. But still, with Nasdaq making a pullback during the latest one-month period, these three semiconductor stocks still look like buys.
The fundamentals criteria that all these three stocks have are:
- Revenue growth
- Strong balance sheet
- Profitability and attractive valuation
The Nasdaq Composite Index has a year-to-date performance of +23.6%. So far in 2020, the widely followed Philadelphia Semiconductor Index (SOX) is up about 21%. It bottomed in mid-March 2020 near 1287 points, and now it stands at 2,242 points.
In the most recent tech stocks selloff, the Philadelphia Semiconductor Index showed strength, as it did not lose too much compared to the performance of Nasdaq. The one-month return for the Philadelphia Semiconductor Index is -2.7%. the Nasdaq composite index fell 4.8% during the same period.
With all that in mind, the three semiconductor stocks to buy are:
Semiconductor Stocks to Buy: Intel (INTC)
52-Week Range: $43.63-$69.29
What is almost always an ideal rule for buying stocks? Wait for a dip or a selloff. Intel had a selloff back in late July 2020, when it announced its second-quarter earnings report. The stock fell from about $61 to $48 not because the earnings report was bad, but due to another catalyst. In the second-quarter report, the company’s management said that Intel’s 7-nanometer chips would be delayed and fall a year behind schedule.
But what seems to be very bad for Intel in the short-term is not fully reflected in the latest earnings report. Some key financial points worth mentioning were:
- Q2 Operating Margin 31%, flat year-over-year;
- Delivered Q2 EPS of $1.23, up 16% YoY; and
- Revenue up 20%.
This semiconductor stock has an attractive dividend yield too — currently 2.6%. And the expected earnings-per-share (EPS) growth for the next three to five years is 8.6%. At a price-earnings ratio (TTM) of only 9.18, Intel is worth further attention.
Skyworks Solutions (SWKS)
52 Week Range: $67.90 – $154.24
Skyworks is focusing on 5G network development and business activities. Its third-quarter 2020 earnings report beat on revenue with a figure of $736.8 million compared to the REFINITIV IBES estimate of $690.7 million. On July 23, 2020, the company declared a quarterly dividend of 50 cents per share, up 14% from the prior quarter’s dividend of 44 cents. And the company has repurchased 670,000 shares for a total of $59 million.
The financial strength of the company is great and the profitability is very attractive. With a current net margin of 24.1% and expected earnings-per-share growth of 12.65% for the next three to five years, it is a stock that draws attention. Yet the P/E Ratio (TTM) is 29.7 and is not low.
But overall the fundamentals of the stock are very strong, and the stock buyback program is supportive of potential higher price levels.
Cirrus Logic (CRUS)
52 Week Range: $47.04 – $91.63
The last stock on this list of semiconductor stocks to buy is Cirrus Logic. Another example of a stock that fell on its earnings releases, despite beating the estimates. The stock dropped 3.1% on the day of the latest earnings report due to the revenue outlook, as the company expects sales for the second quarter to be lower than the analyst’s estimates. The company’s latest reported earnings were better than expected. “While 2Q revenue guidance was disappointing, its 1Q earnings crushed analysts’ estimates. Cirrus Logic’s (CRUS) adjusted EPS jumped 51.4% to $0.53 year-on-year exceeding analysts’ estimates of $0.30. Moreover, revenues grew 1.8% to $242.6 million year-over-year and surpassed Street estimates of $225.6 million.”
The stock has a year-to-date performance of -20%. This means that the stock has missed the rally of the Nasdaq composite index so far in 2020. And the stock price seems attractive at recent levels, while the company has a strong balance sheet, strong positive free cash flows and the expected earnings-per-share growth for the next three to five years is 6.4%.
A stock can become cheaper for fundamental reasons, but CRUS could find support at these price levels and an imminent rebound is likely. These three semiconductor stocks to buy can move higher if the tech stocks rally continues in 2020. All of them have very good fundamentals and look very attractive from a valuation analysis.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.