Shares of some of the biggest names in the semiconductor industry, including Advanced Micro Devices AMD, Nvidia NVDA, and Micron MU have surged in 2019. The climb is due in part because Wall Street and investors began to see value in some chip names after many tumbled, along with other tech giants, to end 2018.
With that said, the historically cyclical semiconductor industry appears to be in the midst of a downturn. Companies in the industry are beholden to their customers’ product cycles, capital investments, and more. On top of that, chip oversupply can hurt pricing power, as is currently the case for some firms in the industry.
Still, despite the current woes, the industry looks poised to remain highly valuable within the larger technological revolution. Semiconductor companies are poised to help drive forward the growth of the Internet of Things, artificial intelligence, autonomous vehicles, and much more. And it won’t just be the likes of Tesla TSLA, Apple AAPL, Microsoft MSFT, Google GOOGL, and Amazon AMZN that are set to turn big profits and see their stocks climb as these industries expand.
Therefore, a return to growth is likely on the horizon for the industry as a whole, even if some face rough near-term outlooks. So, let’s take a look at three Zacks buy-ranked semiconductor stocks right now.
1. KLA-Tencor Corporation KLAC
KLA-Tencor is part of the Semiconductor Equipment - Wafer Fabrication industry and is one of the largest semiconductor equipment companies in the world. The firm provides advanced process control solutions for manufacturing wafers and reticles, along with integrated circuits and packaging. Shares of KLAC have soared roughly 40% since the start of the year, hitting new highs along the way. The firm, which recently received Intel’s INTC 2018 Preferred Quality Supplier award, currently pays a $0.75 per share dividend and has a yield of 2.54%.
KLA-Tencor is a Zacks Rank #2 (Buy) right now based on its positive earnings estimate revision activity. Looking ahead, the company is expected to see its current adjusted full-year EPS figure pop 5.4% on the back of 11.9% revenue growth. Peeking further down the road, KLAC’s earnings are projected to jump 11.3% above our current-year estimate in the following year on 17% revenue expansion. The company also rocks a “B” grade for Value in our Style Scores system and is trading in line with its industry’s average P/E at 14.63.
2. Cree, Inc. CREE
Cree is a manufacturer of LEDs and semiconductors that enhance the value of solid-state lighting, power and communications products. The company’s “SmartCast” platform enables Power over Ethernet technology and is geared toward IoT products and Smart Building platforms. Cree rocks a Zacks Rank #2 (Buy) at the moment and shares have soared 51% in 2019, to blow away the S&P 500 and the broader industry.
The Durham, North Carolina-based company has a strong history of quarterly earnings beats. This includes an average earnings surprise of 52% in the trailing four periods. Plus, analysts expect Cree’s current fiscal year earnings, which ends in June, to skyrocket 310%. Better yet, this growth is expected to continue to the tune of another 63% in the following year. The company also sports an “A” Grade for Growth in our Style Scores system.
3. Xilinx, Inc. XLNX
Xilinx’s Adaptive Compute Acceleration Platform is situated to help support the expansion of everything from AI and machine vision to databases and data compression. The company’s stock price has soared 55% in 2019 to help XLNX hit new highs along the way. Meanwhile, Xilinx’s position in the Semiconductors – Programmable Logic industry, which currently ranks #2 out of the 256 industries in our Zacks system, could help XLNX’s climb continue.
Xilinx posted record Q3 revenue and declared a quarterly cash dividend of $0.36 a share. Looking ahead, the company is projected to see its fiscal Q4 revenues surge roughly 23% from the year-ago quarter, based on our current Zacks Consensus Estimate. At the bottom end of the income statement, Xilinx’s adjusted Q4 earnings are expected to soar 48.5%. Xilinx is currently a Zacks Rank #2 (Buy) and is scheduled to release its fourth-quarter financial results on April 24.
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