All three major U.S. indexes jumped over 2% through morning trading Tuesday on better-than-expected May retail sales. Alongside another sign that the U.S. economy is in coronavirus recovery mode, the Fed on Monday laid out its previously announced plans to buy U.S. corporate bonds and reports surfaced that the Trump administration is considering a $1 trillion infrastructure plan to help boost the economy.
May U.S. retail sales surged roughly 18% from April, according to Commerce Department data, to crush projections of economists surveyed by The Wall Street Journal who called for a 7.7% bounce. The climb represented the largest monthly increase on record, dating back to 1992. The numbers also highlighted that the pandemic’s worst economic days are likely behind us, with retail sales from non-essential segments such as furniture up big.
Despite the positivity, stocks suffered some big losses last Thursday on fears about spikes in coronavirus cases. That said, there was always going to an increase in cases as economies around the world reopen because the virus didn’t disappear.
Plus, the big-one day drop might simply have been a chance for investors to take home some profits, as it came just days after the Nasdaq hit new highs, driven by Amazon AMZN, Apple AAPL, Microsoft MSFT, and others, and the S&P 500 broke into positive territory for 2020 and remains up 36% from its March 23 lows.
Volatility could rear its head again, but investors might still want to buy stocks. This means they should hunt for stocks with solid fundamentals within growth-focused industries. With this in mind, let’s dive into three semiconductor stocks that investors might want to buy both for the coronavirus rally and longer-term growth…
Marvell Technology MRVL
Marvell offers semiconductor solutions for storage, processing, networking, security, and connectivity. MRVL topped our Q1 FY21 estimates at the end of May, with revenue up roughly 5%. Marvell’s Q1 sales were driven by “stronger demand” for its “networking products from the datacenter and 5G infrastructure end markets.” CEO Matt Murphy said in prepared remarks that while it did “experience some COVID-19 supply chain impacts on our storage business in the first quarter, we expect a bounce back in the second quarter and we project our networking business to continue to grow.”
The infrastructure semiconductor solutions firm’s Q2 revenue is projected to jump 9.7%, with Q3 projected to climb 17.4%, based on our current Zacks estimates. MRVL’s FY21 sales are then expected to jump 11.6% to hit $3.01 billion, with FY22 projected to jump 16% higher—both of which would mark significant improvements from FY20’s 6% downturn. Meanwhile, Marvell’s adjusted earnings are projected to surge 25% in Q2 and 47% in Q3 to help lift its FY21 EPS figure by nearly 40% to $0.92 a share. Better still, its adjusted FY22 earnings are projected to climb 50% above our current-year estimate.
Marvell’s positive earnings revisions trends help it earn a Zacks Rank #2 (Buy) at the moment. MRVL also trades just above its highly-ranked Semiconductor - Communications industry’s average in terms of forward sales, as it has for most of the last three years. Plus, Marvell shares have jumped 30% in 2020 and 82% since the market’s lows to crush its industry’s expansion and rest near their recent highs at around $35 a share. MRVL is also up 100% in the past three years. And accompanying its growth, investors grab a dividend yield that nearly matches the 10-year U.S. Treasury’s payout.
Inphi Corporation IPHI
Inphi makes semiconductor components and optical subsystems for networking OEMs, as well as cloud computing and telecom companies. IPHI is a leader in data movement interconnects between and inside data centers and helps “move big data fast, around the globe.” Inphi’s Q1 results wowed Wall Street on May 7, with revenue up 70%. Higher demand for cloud and telecom products helped drive sales, as did the inclusion of eSilicon, which it officially purchased in January.
Inphi’s record top-line growth came on top of the year-ago period’s 37% expansion. The firm was already benefiting from a data center boom, the transition to 5G, and more. CEO Ford Tamer thinks the “significant paradigm shifts” caused by the coronavirus, from remote work to e-commerce, might encourage “further acceleration of bandwidth upgrades.” And Inphi’s adjusted FY20 earnings are projected to surge 66%, on 66% higher revenue.
The Santa Clara, California-based firm is then projected to follow up this projected full-year expansion with 16% higher sales in FY21 and 30% stronger earnings. Inphi has also seen its earnings revision activity turn completely positive to help it grab a Zacks Rank #2 (Buy) right now. IPHI shares jumped following its Q1 release, with the stock now up 56% in 2020 and 150% in the last 12 months. Investors should note that Inphi shares are currently trading around 10% off their recent highs, which could set up a solid buying opportunity.
Nvidia is a GPU giant that has proven for years its strength in the booming gaming market and its more recent expansion into data centers and cloud computing has impressive Wall Street. NVDA topped our Q1 estimates on May 21, with revenue up 39%, driven by an 80% climb in data center revenue, which crossed the $1billion threshold for the first time. And NVDA’s new Ampere architecture is set to play a key role within AI-focused chips and in cloud computing
Nvidia in late April also closed its $7 billion acquisition—its largest ever—of Mellanox Technologies to help bolster its data center business and more. Nvidia’s earnings estimates have turned far more positive since its Q1 beats to help it earn a Zacks Rank #2 (Buy) right now. Our Zacks estimates call for its revenue to jump 42% and 33%, respectively in Q2 and fiscal 2021. Meanwhile, NVDA’s adjusted earnings are projected to soar 57% and 36.5% over this same stretch. And Nvidia’s adjusted FY22 EPS figure is projected to jump another 22% higher on 18% higher sales.
NVDA stock is now up 55% in 2020, against its industry’s 7% climb, and 150% in the last year. NVDA’s valuation picture is a bit stretched, but investors have been willing to pay a premium for Nvidia for five years now and its stock price sits 5% below its new highs. And Wall Street might continue to scoop up Nvidia for its longer-term growth outlook within cloud computing, gaming, and more. Plus, Nvidia pays a dividend, is part of an industry that rests in the top 10% of our Zacks industries, and boasts a strong balance sheet.
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