3 Strong Buy Semiconductor Stocks to Consider Now
Semiconductor stocks were battered by the recent market sell-off, but tech has made a strong recovery, and with several interesting trends like the Internet of Things and artificial intelligence on the rise, it is still an exciting time to be investing in chip-making corner of the technology sector.
While tech behemoths like Microsoft MSFT and Apple AAPL may hog all the headlines, it has really been the companies powering their technologies—the semiconductor manufacturers—that have been garnering the attention of Wall Street.
Indeed, as our “Computer and Technology” sector has gained nearly 20.9% over the past year, semiconductor companies have been a driving factor behind its growth. The aforementioned emerging tech trends have created new consumer demand, and the semiconductor makers are delivering.
Luckily, the proven Zacks stock picking methods are effective across all industries. Check out these Zacks Rank #1 (Strong Buy) semiconductor stocks right now:
1. Applied Materials, Inc. (AMAT)
Applied Materials is one of the world’s largest suppliers of fabrication equipment to semiconductor, LCD, and solar PV cell manufacturers. When the semiconductor business is booming, Applied benefits as its clients demand new equipment and services.
In its most recent quarter, Applied Materials witnessed adjusted earnings of $1.06 per share, up 59% from the year-ago period. Total quarterly revenues came in at $4.2 billion, improving more than 28% year over year. It is not often that companies with AMAT’s size and legacy see such rapid expansion—and this growth is a testament to the strength of its client base.
On top of its #1 (Strong Buy) designation, AMAT is also presenting some interesting valuation metrics. The stock is trading at just over 12x forward earnings, and with its PEG ratio of 0.9 investors can see that they are getting a decent price for its earnings growth potential.
2. Micron Technology, Inc. (MU)
Micron is one of the leading worldwide providers of semiconductor memory solutions. The company’s products are marketed towards customers in a variety of industries, including computer manufacturing, consumer electronics, and telecommunications. Micron’s rapid top and bottom line growth has made short-term price swings a common occurrence, but the firm has the potential to dominate for years.
Micron is expected to continue its streak of impressive growth, with current consensus estimates calling for earnings to improve an additional 122% on the back of 44% revenue growth this fiscal year. But the stock is also sporting an “A” grade for Value in our Style Scores system and it looking like one of the tech sector’s top value options.
MU is trading with a Forward P/E of just 4.6, and its rock-bottom PEG of 0.5 implies that investors are getting a great price for its aforementioned growth. Meanwhile, its P/S of 2.3 is respectable, while its P/B of 2.2 is well within the ideal range.
3. Mellanox Technologies, Inc. (MLNX)
Mellanox Technologies is a leading supplier of semiconductor-based, interconnect products to world-class server, storage, and infrastructure OEMs. The company's VPI enables standard communication protocols to operate over any converged network with the same software solution.
Mellanox is scheduled to release its latest quarterly report next week, and our consensus estimates are calling for the company to post EPS growth of 183% and revenue growth of 29%. Management has also managed to beat earnings estimates in three-consecutive quarters. Heading into the report, MLNZ is trading at 19.9x forward earnings—its lowest earnings multiple in over a year.
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