Markets have turned more bullish since the last week in August, with the S&P 500 up 4.6% since bottoming out on August 23. Among the leaders in the market’s shift are, a bit surprisingly, the chip stocks. Semiconductor companies were hard hit by the escalation in tariff tensions between the US and China, but are showing signs now of recovering and turning back up. According to JPMorgan, “Assuming no further major negative developments on the trade front post the tariff increases this weekend, we expect semiconductor stocks to continue to outperform for the remainder of the year.”
Three major semiconductor stocks are showing signs, in the past two weeks, that they will indeed gain and hold those gains going forward. Trading volumes were up, and the three major chip makers outperformed the S&P, gaining 7% to 13% in the time since the index bottomed. We’ve looked into TipRanks’ database, to get the analyst perspective on these big semiconductor players.
Micron Technology, Inc. (MU)
Micron hit $31.8 billion in sales for 2018, putting it in fifth place among the chip makers. It may not stay in that spot for long, however, as Micron also showed 33% sales growth from 2017 to 2018, third highest among the top 15 chip companies. In addition, MU’s share price has shown less volatility through the summer, and the company’s share gains in the past two weeks, 13.9%, are triple those of the broader S&P 500.
Wall Street’s top analysts also take a positive view of Micron’s prospects. From Mizuho, Vijay Rakesh wrote, "we believe current NAND and DRAM pricing trends are better than expectations entering the SepQ/2H19, with NAND pricing recovering to Mar-Jun levels and DRAM stabilizing.” Rakesh’s price target, $50, is conservative, and only indicates a 2% upside.
Sidney Ho, of Deutsche Bank, also sees a path for MU to improve. He comments, “The equity market has historically led business fundamentals by about one quarter, and Micron shares will find support at the current level. We see risks to the upside as business improves.” Ho’s $55 target suggests a potential upside of 12%.
Micron has the narrowest upside of the large chip companies, only 0.06%, based on a share price of $48.97 and an average price target of $49. The stock’s Moderate Buy consensus rating is based on 12 buys, 5 holds, and 2 sells from the past three months.
Broadcom, Inc. (AVGO)
Broadcom holds the #6 spot among the world’s big semiconductor companies. It hasn’t slipped places, the way Intel has in recent years, but where Intel showed a 14% gain in sales from 2017 to 2018, Broadcom’s gain was only 4%. This is a company with a large and stable niche in a major industry, that is managing to hold its ground against the competition. And in the last two weeks, AVGO shares jumped 7.3%.
Share appreciation is only one part of Broadcom’s advantage. The company also pays out a 3.63% dividend, and has been reliable for the last decade in meeting its obligation every quarter. Even better, Broadcom has also adjusted the rates to ensure a steadily increasing payment. At the current rate and share price, AVGO pays out $10.60 per year to shareholders, making it one of the highest dividend payments in the S&P index.
Jefferies analyst Mark Lipacis was careful to note AVGO’s hefty dividend in his recent review of the stock, pointing out especially that the company will be announcing a 30% increase this coming December. The upcoming increase is inline with Broadcom’s ongoing policy of returning half of the free cash flow to shareholders. Lipacis notes that the expected FCF for fiscal year 2019 is $10.9 billion. His $324 price target on AVGO suggests an upside potential of 11%.
Broadcom, like the other major semiconductor makers, had a difficult summer, but the company’s clear investor appeal has helped it keep a Moderate Buy from the analyst consensus. The rating is based on 23 buys and 8 holds given in the last three months. The stock’s $312 average target implies an upside of 7% from the $291 share price.
Intel Corporation (INTC)
Three years ago, Intel was the top chip maker in the world’s markets. By the end of 2018, it had slipped to second place, with $70.15 billion in sales. The company has faced increasing competition in its core PC market, but has recently released a new series of tenth generation mobile processors that it expects will boost sales in coming months.
Investors apparently agreed; INTC shares showed a 13.2% gain in the last week of August and first week of September. It’s an impressive performance for a stock that had difficulty gaining traction through the summer. Three of Wall Street’s 5-star analysts see it as reason for optimism on Intel stock.
Writing from Nomura, 5-star analyst David Wong set the initial optimistic tone, with a $65 price target on this stock. He noted, “While we view [the recent] processor introduction as a small incremental addition to Intel’s overall notebook lineup, we think the release of 14nm Comet Lake and Amber Lake Y chips supplements the release of 10nm Ice Lake Core notebook processor offerings at the beginning of this month to help Intel maintain an up-to-date lineup across the entirety of the mobile processor spectrum.” Wong’s target for INTC implies a robust upside of 27%.
Baird analyst Tristan Gerra agrees that Intel is at the start of an upward trend. He says, “Aggressive 7nm ramp along with 5nm front-end investments for 2020 are part of Intel's plans to catch up and accelerate its pace of innovation. The first 7nm architecture to launch will be a GPU targeting servers, shortly followed by CPUs.” Gerra also gives the stock a $65 price target.
Finally, Ivan Feinseth of Tigress Financial also reiterated his Buy rating on this stock. While he did not set a specific price target – his usual habit – it’s important to note that Feinseth has maintained a Buy rating on INTC since May of 2018, and his average return on the stock has been 9.8%.
Overall, Intel’s analyst consensus remains a Hold, based on 9 buys, 10 holds, and 9 sells – the low rating is an artifact of the company’s difficult summer, and the most recent reviewers have given the stock Buy ratings. Intel shares are selling for $50.92, and with an average price target of $53.89, the stock has a 5.8% upside potential, which, while modest, is in line with Broadcom’s and significantly higher than Micron’s.
Visit TipRanks’ Trending Stocks page, to find out which other large-cap stocks Wall Street’s top analysts are giving top ratings.