When the Covid-19 pandemic hit, semiconductor stocks were on fire. The pandemic caused an economic effect that led to unprecedented demand for electronic devices of all sorts, most of which require semiconductors to function.
Demand for goods and services was up across many industries, including computers, cars and cell phones. The semiconductor industry has been through a lot, but it’s now entering an even more challenging phase.
The complex geopolitical landscape is one of the many challenges businesses face in an ever-changing world. The conflict between China and Taiwan, rising tensions over trade agreements with other countries such as America and China (to name just two), can have devastating effects on any business that relies heavily upon those supplies for their success — which includes almost every company out there.
In addition, demand for semiconductor chips is extremely high. And there is no way the industry can keep up with it at this stage. Estimates vary when the companies in the sector will get ahold of the situation. However, it is certainly weighing down sentiment.
The tech downturn has been a big hit on the semiconductor sector. But that has also created opportunities in the industry as prices fall, making it more attractive to enter into a stock before it takes off again.
- Intel (NASDAQ:INTC)
- Texas Instruments (NASDAQ:TXN)
- United Microelectronics (NYSE:UMC)
- Analog Devices (NASDAQ:ADI)
- Advanced Micro Devices (NASDAQ:AMD)
- Camtek (NASDAQ:CAMT)
- Ambarella (NASDAQ:AMBA)
Semiconductor Stocks: Intel (INTC)
Intel is a chipmaker that has been around for just over half a century. It has been leading the world in technology since its inception.
Intel is among the world’s largest semiconductor manufacturers and one of the top five global PC makers. Intel is one of the best semiconductor stocks based on its exposure to the industry. Several other factors make it one of the most compelling investments available.
The company’s main business is making chips for PCs/servers and selling them. The industry stagnated for several years. However, the pandemic brought it back to life. People have bought machines to work or study, which has provided better business for the company.
Alongside its efforts in the semiconductor space, Intel has invested in many other businesses over the years, including Mobileye. This operating unit is expected to generate a profit for Intel this year.
Overall, Intel is one of the biggest computer chip manufacturers globally. It is also one of the cheapest blue-chip stocks out there, trading at just 13.8 times forward price-to-earnings.
The history of the organization, its strong earnings profile and robust outlook mean INTC stock is a great one for your portfolio. If you add a dividend yield of 3% and a cheap valuation, the stock becomes a must-have among semiconductor stocks.
Texas Instruments (TXN)
Texas Instruments is the world’s leading supplier of semiconductors. The company provides cutting-edge technology that helps keep our lives more efficient and connected than ever before, from chipsets for cell phones to televisions. It was founded in 1951 by Cecil H. Green, a professor of electrical engineering at the University of Texas at Austin.
Texas Instruments recently announced its earnings and ramped up investments in new equipment. This caused a volatile reaction in the market, with traders making corresponding moves.
In order to maintain its dominance in the analog semiconductor space, TXN will have lower free cash flow and dividend growth for now.
Texas Instruments reported fourth-quarter revenue of $4.83 billion, net income of $2.14 billion, and earnings-per-share of $2.27. Revenue went up substantially, fueled by strong demand in industrial and automotive markets. Analog revenue grew by 20% and Embedded Processing grew by 6% year-over-year.
The company is continuously showing its strength, with cash flow from operations reaching $8.8 billion for the year and free cash flow at 34% of revenue. This demonstrates the quality of its products in its 300 mm production batches as well its efficient manufacturing strategy, which has been paying off during these tense times.
The company expects revenue of between $4.5 billion and $4.9 billion and EPS to be between $2.01 and $2.29.
Apart from its strong financials, Texas Instruments is also a strong income play. In the words of Rich Templeton, TXN’s chairman, president, and CEO, “We returned $4.4 billion to owners in 2021 through dividends and stock repurchases. For the year, our dividend represented 62% of free cash flow, underscoring its sustainability.”
Semiconductor Stocks: United Microelectronics (UMC)
United Microelectronics Corporation is a global leader in the manufacture of advanced microelectronics and also provides related services such as design, contract manufacturing or verification. The company has expanded across Asia and the U.S. with many locations. It’s also a semicodunctor foundry, which means that it provides many chips for small businesses to purchase.
The semiconductor super-cycle has been occurring since companies are building more chips to meet a sudden and sustained demand. Under these circumstances, the company can profit from its strong standing in the industry. Semiconductor capital expenditures are surging. UMC is positioned to be a winner because it provides basic foundry operations with other related services such as circuit design, assembly and testing.
United Microelectronics Corporation is a company that made headlines last year during the worst of the semiconductor supply crunch. The company could get advance payments from its customers, mostly composed of auto manufacturers and other high-profile clients, for the service engagement with UMC’s services.
The rise of UMC has given it a competitive edge as it continues to increase efficiency and leverage its investments. In addition, the company has a dividend yield of 2.9% and is trading at just 9.7 times forward P/E. All of this makes it a great pick among semiconductor stocks.
Analog Devices (ADI)
Analog Devices has been around for over 50 years and is leading in data conversion, signal processing technology and power management systems. It provides solutions to customers worldwide for products ranging from commercial television broadcast transmitters to medical equipment monitors.
Analog can maintain its market leadership because it has a diverse product line against competition and technological obsolescence. It also helps Analog companies reach a wider audience for their products and services. Connected cars and the “internet of things” are often talked about in the ongoing tech-focused discussions. Remote monitoring is also becoming a big part of workplace technology, and it can help you with security. All of these trends will act as tailwinds for Analog Devices.
ADI recently announced earnings that exceeded Wall Street expectations. The company made $280 million in its first quarter, continuing to meet its expectations. Furthermore, ADI says it had 53 cents per share, while its profit after taxes was $1.94 per share. Finally, ADI announced $2.68 in revenue, which also exceeded analyst estimates.
Analog Devices is predicting earnings will be betweem $1.97 to $2.27 per-share for this quarter with revenue ranging from $2.7 billion to just under $3 billion.
ADI has paid a sustainable dividend for 18 years, which keeps its stock price stable. The cash flow mostly funds dividends that hold the stock price high.
Semiconductor Stocks: Advanced Micro Devices (AMD)
Advanced Micro Devices is a major global semiconductor company that specializes in manufacturing. It also offers a range of software, including x86-64 compatible 64-bit computing and graphics technologies that power AMD’s Ryzen Threadripper processors.
AMD beat its earnings estimates and guidance in Q4 and has a strong outlook for 2022. In 2021, AMD saw its sales increase by 68% and its gross margin increase by over three percentage points from last year. AMD’s stock has been rising lately, and so has its processor sales.
AMD recently released new chips with a significant increase in performance, allowing them to challenge Intel as the No. 1 computer chip supplier. It is also buying Xilinx to better compete with Intel.
Furthermore, the company produces chips specifically for the cloud and video game sectors. AMD’s Lisa Su says that growth in demand for console upgrades is surpassing “all prior generations.” That makes this is a key segment to watch.
AMD said that it has been spending $1 billion in the current year on securing long-term supplies. AMD suggests that it will be able to grow without too much of a problem in 2022, which is encouraging news considering the worldwide chip shortage that is happening now.
The semiconductor company set a revenue goal of $21.5 billion for 2022, ahead of analyst expectations of $19.3 billion. This would be a 31% increase over 2021′s sales, thanks to the launch of Ryzen and Vega products this year.
AMD expects to have $5 billion in sales in the first quarter. Most of the sales will come from servers and computers due to AMD’s success with processors. All of these numbers help it feature prominently on this list of semiconductor stocks to buy.
Camtek is a world leader in designing and manufacturing metrology equipment for advanced packaging, memory CMOS image sensors and RF technologies. The company offers dedicated solutions that help improve yield rates while driving down production costs across all industries. In other words, Camtek’s products are essential tools used by companies throughout their entire supply chain.
With the need for more semiconductors continuing, it’s no surprise that there are plans to build many new plants. This part of the value chain isn’t exactly glamorous but it is integral in getting these projects off their feet and ramped up quickly enough before producing anything valuable or selling any products.
Camtek has traditionally been one of the top companies in the market, and it saw a 53% increase in its revenue in its latest quarterly results. GAAP operating income was $19.3 million while non-GAAP operating income was $20.9 million, providing a margin of 26% and 28.2%, respectively. Operating cash flow of $21.5 million is a strong figure to close out the quarter.
The company reported record annual revenues of $269.7 million, an increase of 73% compared to the previous year. Record GAAP operating income of $70.9 million, non-GAAP operating income of $76.7 million and 28.4% operating margins, respectively. These are high levels in contrast to the average found throughout most companies.
Semiconductor Stocks: Ambarella (AMBA)
You need to look at the semiconductor industry in general when assessing how well a company has scaled to success. The best thing you can do is to invest in a company with a diversified business model. Some of this appeal comes from niche players.
Still, some want a more specific focus as Ambarella does — its chips are designed for low power and high definition video compression applications, which it markets under an established brand name.
Think of the numerous ways that Ambarella’s technology is used in today’s world. Products such as Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google Nest and GoPro (NASDAQ:GPRO) cameras have successfully implemented this chip into their respective products, showing us just how quickly things can change if we let them.
Due to threats of interest rate hikes, growth stocks are not doing so well. But that doesn’t mean the time is right to bail on this one. Ambarella is a company that specializes in creating semiconductor solutions for the automotive industry. They make up the core of the car’s “brain” and provide software to help cars learn and react to their environment.
Considering the breadth of its services and use cases, this is a stock that you need to have in your portfolio.
On the publication date, Faizan Farooque did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. You can check out his work on InvestorPlace and TipRanks.