I firmly believe that 2024 will be a big year for semiconductor stocks. As important as it is to consider the best equities in the space, it’s equally important to identify F-rated semiconductor stocks to know which ones to avoid in the new year.
That’s because it’s really easy for your portfolio to take a nosedive if you’re carrying the wrong stocks. Even as the market flirts with all-time highs, stocks in any sector are always underperforming because of debt, poor management or an inability to keep up with the competition.
And you really want to get off to a good start. Markets traditionally are hot in December (the so-called Santa Claus rally) but tend to cool off a bit in January.
If you can outperform the market this month, you set yourself up for a good year. If you are holding some weak stocks, however, you start the year in the hole and spend the rest of the first quarter scrambling to catch up.
One way to avoid that problem is to avoid F-rated semiconductor stocks. The semiconductor industry will be important this year, but these names should be on your “sell” list.
MaxLinear (MXL)
Maxlinear (NASDAQ:MXL) serves the communications industry. It makes semiconductors that are used for cable and satellite television receptions, as well as broadband data access, wireless infrastructure and networking.
Last year was one to forget. Not only did the company back out of its $4 billion acquisition of Silicon Motion (NASDAQ:SIMO), triggering legal action, but the company’s revenues are dropping considerably.
Revenue in the first, second and third quarters was down from a year ago. The third quarter showed revenue of $135.5 million, which was down 53% from a year ago. The company posted a loss of 49 cents per share, much steeper than the 5-cent loss per share recorded in the third quarter of 2022.
Fourth-quarter revenue isn’t expected to be a vast improvement. Maxlinear issued guidance for revenue between $115 million and $135 million. A year ago, Q4 revenue was $285.7 million.
Maxlinear is headed in the wrong direction, and the stock is down 35% from a year ago. It gets an “F” rating in the Portfolio Grader.
AXT (AXTI)
AXT (NASDAQ:AXTI) doesn’t make semiconductors, but it makes the materials that are needed for semiconductors.
AXI manufactures compound semiconductor wafer substrates, which is the base material from which photonics and wireless devices are fabricated.
Its products are used in consumer devices, automotive, IoT devices, telecom infrastructure, and data centers.
The California company is seeing is prospects dropping quickly, with the top line falling and the stock price slipping by 47% over the past year.
The third quarter showed why Wall Street is bearish. A year after posting revenue of $35.2 million and a profit of $4.6 million, AXT’s revenue fell to only $17.4 million. Instead of a profit, AXT produced a loss of $6.7 million.
AXT needs to turn things around before investors can regain confidence. It gets an “F” rating in the Portfolio Grader.
Meta Materials (MMAT)
It’s not looking good for Meta Materials (NASDAQ:MMAT) stock. With the stock price at 6 cents per share, the stock is at risk of being delisted from the Nasdaq exchange.
Nasdaq informed Meta in November it was out of compliance because the stock closed at less than a dime for 10 consecutive days.
Meta is now scheduled to have a hearing on March 21 so it can appeal the decision.
In addition, Meta Materials is out of compliance with another Nasdaq rule that says that companies can be delisted if shares close below $1 for 30 consecutive days. Meta was given until Sept. 18 to resolve that issue, but the point is moot if it loses the March hearing.
Meta Materials sought shareholder approval for a reverse stock split to bring the price into compliance, but shareholders rejected the notion in December.
All these leaves the semiconductor company in a precarious position. MMAT stock is down 93% in the last year and gets an “F” rating in the Portfolio Grader.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) makes power optimizers and inverters to help solar panels operate more efficiently.
Solar power is a top priority of the Biden administration as it seeks to lower greenhouse gas emissions and has been offering incentives to promote alternative energy sources.
But there are industry headwinds at play as well. Oppressive interest rates and high inflation made 2023 an unappealing time for customers to invest in solar panels.
In addition, some states are looking to roll back the compensation that solar power customers get from utility companies through net metering rules. That will make solar power less appealing, even as interest rates look to fall and inflation is back under control.
Third-quarter earnings didn’t make anyone feel better. Revenue was $725.3 million, less than analysts’ expectations of $758.38 million. And the company posted a loss of 55 cents per share while the Street was expecting a profit of 89 cents per share.
SEDG stock is down 78% in the last year and gets an “F” rating in the Portfolio Grader.
Emeren Group (SOL)
Emeren Group (NYSE:SOL) is a solar project developer and operator.
The company operates in Asia, Europe and the U.S., targeting locations that have government-friendly policies for solar power grids.
Projects in the U.S. are in Minnesota, North Carolina, Pennsylvania and California, among others. It also focuses on developing utility-scale green energy and solar projects in California, Illinois, New York and Pennsylvania.
It is also attempting to spread internationally, with recent purchases of solar portfolios in Italy, Spain, and China.
However, revenues and profits are down significantly as a strong U.S. dollar and permitting challenges accounted for more than $9 million in charges in the third quarter.
For the quarter, revenue of $13.9 million was steep from a year ago when it recorded $23.9 million in revenue. The company posted a net loss of $9.4 million, much worse than the loss of $1.1 million a year ago.
SOL stock is down 49% in the last year and gets an “F” rating in the Portfolio Grader.
SunPower (SPWR)
Another F-rated semiconductor stock that’s involved in solar energy is SunPower (NASDAQ:SPWR).
The company designs, manufactures and sells solar electric systems that are used in residences and commercial properties.
But the company appears to be in trouble. First, it announced in October that it would need to restate financial statements for 2022 and the first two quarters of 2023 because it overvalued some assets by as much as $20 million, which resulted in the cost of revenue being understated.
Then it failed to file Q3 results on time, which breached a key contractual term that could allow lenders to recall loans amounting to $65.3 million. SPWR stock lost 30% of its value in a single day, as the company acknowledged it wouldn’t have the means to continue if lenders called in the notes.
This continues a long downward spiral for SWPR stock, which is down 77% overall in the last year. It gets an “F” rating in the Portfolio Grader.
Ambarella (AMBA)
Ambarella (NASDAQ:AMBA) is a California-based semiconductor design company. It makes video processing chips for security cameras, automobile cameras and drones.
Its products are used in human vision and AI applications, including video security, advanced driver assistance systems, driver/cabin monitoring, and autonomous driving.
However, as the industry saw a pullback in the demand for high-quality video products in 2023, Ambarella’s revenue dropped dramatically.
Earnings for the third quarter were down 39% from a year ago, coming in at just $50.6 million. For the first nine months of the year, Ambarella’s revenue was $174.9 million versus $254.3 million in the first nine months of 2022.
Fourth-quarter earnings are expected to be much of the same, with the company guiding for $50 million to $53 million. With Ambarella facing steep competition from better-known and A-rated competitors, I wouldn’t expect anything more from AMBA stock.
It gets an “F” rating in the Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
