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Avoid NVIDIA, Add These 4 Top-Ranked Semi Stocks to Portfolio

NVIDIA Corporation’s NVDA lower-than-expected top and bottom-line results left it tremendously stressed ever since its quarterly earnings release on Nov 15.

Moreover, the company’s weak near-term guidance dealt a severe blow to investor confidence. Notably, shares of NVIDIA have lost 26.4% since its earnings announcement, thereby wiping out more than $25 billion of investor wealth.  

Further, this Zacks Rank #5 (Strong Sell) stock is currently one of the worst performers, lagging the S&P 500 index and the industry it belongs to over the past year.

Shares of NVIDIA have plunged 31% in the past year compared with the industry’s 9% decline. The loss is also against the S&P 500 Composite’s 1.6% increase.

What’s Ailing the Stock?

NVIDIA’s results were marred by a sluggish Gaming segment, affected by an excess inventory of midrange Pascal products. Notably, inventory level of midrange Pascal gaming cards remained higher-than-expected as demand from gamers failed to grow rapidly to offset the soft cryptocurrency-related requirement. Consequently, shipment was badly hurt as the price of graphic cards is still elevated.

On the earnings call, management mentioned that it will take a couple of quarters to normalize the channel inventory. As the company plans to lower its excess channel inventories, it announced suspension of mid-range Pascal GPU shipments. Notably, the company’s mid-range desktop portfolio constitutes nearly one-third of its gaming business.

Moreover, in the fiscal fourth quarter, NVIDIA anticipates soft sales of Tegra chips for game consoles on account of normal seasonal build cycle, to weigh on its gaming revenues. All these impelled the management to issue a tepid guidance for the period.

Additionally, although the company is witnessing growth in its datacenter business, the growth rate seems to have waned from the previous levels.

Given the circumstances that NVIDIA is currently in, it advisable for investors to steer clear of the stock.

Our Picks

Although NVIDIA's prospects may not seem appealing at the moment, there are some semiconductor stocks that hold great promise.

Zacks’ proprietary methodology comes in handy while zeroing in on these stocks. Our research shows that stocks with an impressive Growth Style Score of A or B when combined with a favourable Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment bets. You can see the complete list of today’s Zacks #1 Rank stocks here.

Here are four stocks with this perfect combination:

Santa Clara, CA-based Intel Corporation INTC is the largest global semiconductor chip set manufacturer for PCs and notebooks. The stock has a Zacks Rank of 1 and a Growth Score of B. The Zacks Consensus Estimate for fiscal 2018 earnings grew 9.7% to $4.53 per share over the past 30 days.

Intel Corporation Price and Consensus

Intel Corporation Price and Consensus | Intel Corporation Quote

Headquartered in Durham, NC, Cree Inc. CREE is a manufacturer of semiconductors that enhance the value of solid-state lighting, power and communications products. The stock is a Zacks #1 Ranked player and has a Growth Score of A. The Zacks Consensus Estimate for fiscal 2019 earnings rose 2.8% to 73 cents in the last 30 days.

Cree, Inc. Price and Consensus

Cree, Inc. Price and Consensus | Cree, Inc. Quote

Malvern, PA-domiciled Vishay Intertechnology Inc. VSH is a global manufacturer and supplier of semiconductors and passive components. The stock has a Zacks Rank #2 and a Growth Score of B. The Zacks Consensus Estimate for fiscal 2018 earnings increased 2.5% to $2.05 in the last 30 days.

Vishay Intertechnology, Inc. Price and Consensus

Vishay Intertechnology, Inc. Price and Consensus | Vishay Intertechnology, Inc. Quote

Based in San Jose, CA, Xilinx Inc. XLNX designs and manufactures field-programmable gate arrays and complex-programmable logic devices. The Zacks Consensus Estimate for 2019 earnings has been revised 10% upward to $3.29 per share over the past 30 days. The stock has a Zacks Rank of 2 and a Growth Score of B.

Xilinx, Inc. Price and Consensus

Xilinx, Inc. Price and Consensus | Xilinx, Inc. Quote

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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
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