Semiconductor stocks have been struggling to generate positive momentum recently, but there are a number of new secular trends which investors are looking to remain exposed to in the long-term. Of these, easily the most exciting for certain niche chipmakers is the Internet of Things.
For those that don’t know, the Internet of Things is the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
For example, consumer-level IoT products include things like Amazon’s (AMZN) Echo “smart speaker,” wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.
(Also Read: How to Invest in the "Internet of Things")
As demand for the microchips that power these IoT devices continues to grow, semiconductor manufacturers with a focus on IoT products will continue to benefit. The volatility we are seeing in chipmakers right now comes from Wall Street’s efforts to call an end to an extended cycle of strength for the cycle, but over time, we could see IoT-focused semiconductor firms maintain their growth as the number of connected devices worldwide continues to expand rapidly.
With that said, we’ve found three stocks which have been flagged by the Zacks Rank that could be poised for further IoT growth soon.
1. Vishay Intertechnology, Inc. (VSH)
Vishay Intertechnology is a global manufacturer and supplier of discrete semiconductors. The company has a broad portfolio of unique passive and active solutions that are tailored to the “things” being controlled in the IoT. Vishay markets its portfolio to manufacturers of everything from biometric monitoring systems to fitbands and smart appliances.
VSH is currently a Zacks Rank #1 (Strong Buy). The stock is solid growth option, with earnings and revenue expected to improve by 40% and 16%, respectively, this year. But VSH is also reasonably priced, and the stock’s P/E of 10.6 and PEG of 1.2 show that investors are getting a great bargain on its current outlook.
The stock has been sluggish in the wake of the aforementioned industry volatility, but investors should keep an eye on the $20 level as a key point of support. The fundamentals look good here, so if that line can hold, there’s definitely potential for a rebound.
2. Cypress Semiconductor Corporation (CY)
Cypress Semiconductor is a leading provider of high-performance digital and mixed-signal integrated circuits. The company has also emerged as a leader in the Internet of Things industry after shelling out $550 million for Broadcom’s IoT business in 2016. Cypress’ “WICED” IoT platform is part of one of the largest such portfolios in the industry.
Cypress has been an up-and-down stock throughout 2018, but we are looking for shares to start reacting to the company’s improving earnings outlook soon. The firm has witnessed eight positive revisions to its full-year EPS estimates within the past 60 days, and that type of sentiment is normally met with share price momentum.
Other reasons to like Cypress include its Zacks Rank #1 (Strong Buy) and “A” grade for Growth in our Style Scores system. The company also pays out a healthy 2.8% dividend yield.
3. ON Semiconductor Corporation (ON)
ON Semiconductor has traditionally been known as a power management and commodity chip maker, but the company has started to carve out a budding IoT division. ON is now heavily involved with automotive solutions, and its IoT offerings also include products catered to wearables, smart city development, and industrial automation.
ON is currently a Zacks Rank #2 (Buy) and has emerged as an interesting earnings growth pick, with EPS totals expected to improve by 26% this year and over 13% on a long-term, annualized basis. Meanwhile, the stock is trading at just 10.3x forward 12-month earnings and sports a PEG ratio of just 0.8.
The Internet of Things is one of the most exciting emerging tech markets in the world. And while these specific products are interesting, the real moneymakers in these situations are the companies that are building the tech that powers these products.
The best way for investors to cash in on this growing trend is to identify companies that are not only investing in the Internet of Things, but are also displaying solid fundamentals and impressive Zacks metrics.
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