- The best semiconductor stocks to buy in 2022 are companies that continue strong spending on technology.
- Intel (INTC): One of the world’s largest chipmakers that generates consistent positive free cash flow.
- Micron Technology (MU): Strong Q2 FY2022 and surge in free cash flow are bullish.
- Skyworks Solutions (SWKS): It remains cheap with great financial strength, all while trading near its 52-week low.
Semiconductor stocks have rallied in the previous two years amid the pandemic, as demand for devices amid the increase in remote work sent the ICE Semiconductor Price Return Index to a high price of 922.97 on Dec. 31, 2021 from a dip at 685.96 on May 14, 2021. That was a near-35% rally for the space. But moving forward, things are a bit different, and choosing the best semiconductor stocks to buy is more complex than before.
Higher interest rates, worries about a recession, the war in Ukraine and the current risk-on, risk-off mood are some key risks investors face today. However, the prospects for the global semiconductor market remain excellent: “The market is projected to grow from USD 483.00 billion in 2022 to USD 893.10 billion in 2029 at a CAGR of 9.2% during the 2022-2029 period.”
Buying the dip in stocks without having a more analytical approach is naïve. As such, all three semiconductor stocks in this article have strong fundamentals and attractive valuations. The increased demand for consumer electronics and integrated circuits in developing countries according to the report will support market growth in the semiconductors industry.
Intel (NASDAQ:INTC) is among the world’s largest chipmakers. Shares of Intel have reached new lows, tumbling beneath the $42 mark.
Typically, when a stock of a company like Intel trades near its 52-week low, institutional investors take notice and this can lead to a floor for the stock price. With a price-to-earnings ratio (TTM) of 7.01x and a forward dividend and yield of $1.46 and 3.29%, respectively INTC stock is too cheap.
The sales growth over the past three years may not impress, but Intel is the classic definition of a cash cow company. In 2021, the free cash flow dipped 54% due to higher capital expenditures, but in the past five years, in four of them, the free cash flow growth was positive. The spinoff and IPO of Mobileye are expected to create a lot of value for Intel and its shareholders.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) has seen its shares decline in 2022 from nearly $96 in early January 2022 to $66 today. It appears that MU stock has strong support near the $66-$67 level as it rebounded in April and in May, where it made a rally to $73 and $74, respectively.
Micron’s price-to-earnings ratio (TTM) of 8.89x is very low, making MU stock cheap, but the forward dividend and yield of 40 cents and 0.56% are not meaningful.
Analysts are bullish about Micron Technology with a 1-year target estimate of $110.42. Furthermore, the Q2 FY 2022 latest earnings report was very strong.
Revenue of $7.79 billion was much higher than $6.24 billion for the same period last year, representing year-over-year growth of nearly 25%. Its gross margin expanded to 47.2% versus 26.4% in Q2 FY2021. Finally, diluted earnings-per-share increased to $2 compared to 53 cents in Q2 FY2021.
Micron Technology is also great at generating positive free cash flow. In the second quarter of fiscal 2022, the company generated more than $1 billion in free cash flow. This is very positive given the fact that in 2021 the firm had generated $2.44 billion in free cash flow, a remarkable growth of 2,837.35%.
Skyworks Solutions (SWKS)
Skyworks Solutions (NASDAQ:SWKS) has a vast product portfolio, including amplifiers, antenna tuners, attenuators, automotive tuners and digital radios, for several markets such as aerospace, automotive, broadband, cellular infrastructure, connected home, entertainment and gaming, industrial among others.
Buying the dip in shares of Skyworks Solutions after losses of 38% year-to-date makes sense as its valuation is cheap, and its fundamentals are strong. The PEG ratio is 0.71x, a signal of a deeply undervalued growth stock. Likewise, the expected three-to-five-year EPS growth of 12.90% is strong.
The sales growth in 2021 surged 52.25% to $5.11 billion and net income growth was 83.89%.
The firm is another cash cow with consistent but volatile free cash flow generation.
Given that SWKS is near its 52-week lows, this is an attractive opportunity for long-term investors. For short-term investors, the odds seem high for a rebound too. The 1-year target estimate of $147.38 represents 48% upside potential.
On the date of publication, Stavros Georgiadis, CFA did not have (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.