Although they’ve received some relief thanks to the latest inflation data, macro uncertainties continue to loom over even the best chip stocks to buy. The global economic slowdown, caused by the raising of interest rates to combat inflation, has led to a slowdown in the tech sector, which could worsen as the year progresses.
However, don’t view this as a sign to stay away from semiconductor stocks. Instead, when it comes to top-rated names in the space, now may be an ideal time to buy. Selling for reasonable (and in some cases, more-than-reasonable) valuations, the potential impact of a continued 2023 “tech slowdown” is largely accounted for.
Beyond the immediate term, if inflation keeps cooling down, the Federal Reserve may just well make its much-awaited “Fed pivot.” Along with the likely benefits stemming from the CHIPS and Science Act (signed into law last summer), semiconductor stocks could experience outsized gains in the years ahead.
So, what are the best chip stocks to buy right now? Consider these seven. Each one earns either an A or B rating in Portfolio Grader.
|ASX||ASE Technology Holding Co.||$7.05|
Analog Devices (ADI)
Analog Devices (NASDAQ:ADI) develops and makes chips utilized by a variety of end users. According to Statista, 51% of the company’s annual revenue comes from industrial end-users, and 21% comes from the automotive sector.
ADI stock has traded sideways over the past twelve months. Although Analog experienced a large amount of revenue and earnings growth during the preceding fiscal year (ending October 2022), the market is concerned about the impact of a recession on results during this current fiscal year.
However, trading at a reasonable 17.3 times forward earnings, the impact of a downturn may be already baked into the valuation of this B-rated chip stock.
Sell-side forecasts also call for Analog Devices to stay resilient, with earnings growth re-accelerating started in FY 2024. This may enable ADI, which also has a forward dividend yield of 1.8%, to steadily climb to new highs over the next few years.
Allegro MicroSystems (ALGM)
Allegro MicroSystems (NASDAQ:ALGM) may be lesser known than many of the best chip stocks to buy mentioned above and below, but there’s a lot to like about this specialty semiconductor maker.
Namely, because Allegro has heavy exposure to both vehicle electrification and solar energy trends. The company’s sensors and analog power chips are used for a variety of EV and renewable energy industries.
This has resulted in steady growth. In its last quarterly results release, Allegro’s revenue grew 23% year-over-year, and earnings per share (or EPS) jumped by around 53%.
As the EV and renewable energy trends pick back up, once current economic challenges clear up, this company is poised to continue reporting solid results. In turn, enabling B-rated ALGM stock, which has been in recovery mode since October, to continue making a comeback.
Amkor Technology (AMKR)
Despite surging by nearly 89% over the past six months, Amkor Technology (NASDAQ:AMKR) continues to trade at what’s arguably a deep-value earnings multiple.
Shares in this outsourced semiconductor packaging and test services company trade for just 9.4 times trailing twelve-month earnings.
Sure, a low trailing valuation can be a sign of earnings declines ahead. Unfortunately, that’s the case here with AMKR stock, according to analyst earnings forecasts. However, considering factors such as China’s post-pandemic re-opening, it’s possible that an earnings decline this year could be less severe than currently anticipated.
If this happens, AMKR could experience moderate multiple expansion. Even a move from its current price-to-earnings (or P/E) ratio, up to a forward P/E multiple in the low teens, would mean yet another double-digit move higher. This chip stock, which also has a 0.97% dividend, earns an A rating in Portfolio Grader.
Array Technologies (ARRY)
Like Amkor, Array Technologies (NASDAQ:ARRY) is another chip stock that has “crushed it” since last July. During this timeframe, shares in this solar tracker manufacturer have more than doubled in price.
Unlike AMKR stock, however, ARRY stock has become pricey following its massive run-up. ARRY currently trades for 67.8 times its estimated 2022 earnings. That said, take a look at forecasts for this year, and you can see why this rich multiple is more-than-justified.
After swinging back to profitability last quarter, earnings growth is expected to keep coming in at a breakneck pace. In large part, thanks to tailwinds from the Inflation Reduction Act.
Renewable energy incentives provided by this bill could pave the way for EPS to climb from 34 cents in 2022, to 94 cents in 2023, and to $1.34 by 2024. These forecasts suggest more runway ahead for ARRY, A-rated in Portfolio Grader.
ASE Technology Holding Co. (ASX)
Among chip stocks to buy, ASE Technology Holding Co. (NYSE:ASX) is one that both trades at a low valuation and has a high dividend yield. Based in Taiwan, ASE Technology Holding is a leading provider of outsourced semiconductor assembly and test (or OSAT) services.
The tech slowdown has clearly started to have an impact on ASE’s results. For example, the company reported a 19.2% year-over-year decline in revenue last month. This is the second consecutive month that the top line has fallen by double-digits.
However, ASX stock trading for only 6.9 times TTM earnings. The market has more than priced in the current rough patch. Once today’s challenges pass, there’s a strong chance of an earnings recovery.
This could fuel a continued rebound for shares. This B-rated stock also paid 46.7 cents in dividends (6.75% yield) over the past year, and may sustain this level of payout.
Amtech Systems (ASYS)
Besides Allegro, buying shares in Amtech Systems (NASDAQ:ASYS) is another way to add EV chip exposure to your portfolio.
In fact, given the present small size of this micro-cap stock’s underlying business, this provider of silicon carbide and power semiconductor production equipment could experience an even greater level of growth.
According to Amtech’s 2022 investor presentation, both the silicon carbide and power semiconductor segments of the industry are expected to keep growing at a rapid clip. This is due to their usage in EVs, renewable energy, and other fast-growing areas such as 5G telecommunications.
With plenty of cash on hand (nearly 35% of its market cap) to finance expansion, the company’s growth could really take off. In turn, ASYS stock, after a mixed performance in recent years, may experience its own “liftoff moment.” Trading for only 7.8 times earnings, consider this B-rated stock a buy, as it remains under the radar.
Broadcom (NASDAQ:AVGO) shares have steadily climbed since December, when this wireless and broadband chip maker reported solid quarterly results.
The AVGO rally though has started to lose momentum in recent trading days. Largely, due to concerns that the company may lose business from one of its key customers, Apple (NASDAQ:AAPL).
But even if speculation about this matter turns into an actual loss of business, there are other factors that could outweigh it. As I discussed recently, when talking about AVGO stock, both the 5G rollout, as well as Broadcom’s planned acquisition of cloud computing company VMWare (NYSE:VMW), could prove to be strong catalysts for shares in the future.
A more-than-fair valuation (14.2 times forward earnings), and a 3.18% dividend yield, are also factors that make B-rated AVGO appealing at today’s prices. Consider it one of the best chip stocks to buy.
On the date of publication, Louis Navellier had a long position in AMKR and AVGO. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.