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Buy Semiconductors on the Dip? 3 Stocks to Consider Now

Ryan McQueeney

Semiconductor stocks have been battered by recent volatility stemming from concerns that the industry’s strong cycle is nearing its end. The business is historically cyclical, so these concerns make some sense, but buying opportunities are still present as valuations become more attractive and secular growth trends remain.

We certainly hear a lot about how consumer-facing companies like Tesla TSLA, Apple AAPL, and Microsoft MSFT plan to revolutionize their industries by harnessing the Internet of Things and artificial intelligence, but we should also remember that semiconductor manufacturers also have the opportunity to grow as they provide the chips which power these technologies.

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. Mellanox Technologies (MLNX)

Mellanox Technologies is a leading supplier of semiconductor-based computer networking 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.

MLNX is a pick for exposure to new tech trends, especially in the server space, without buying just a chipmaker. This could shield from cyclical volatility. The stock is also an explosive growth pick, with earnings and revenue expected to improve by 104% and 25%, respectively, this year. Plus, considering the company’s P/E of 16.4 and PEG of 1.1, the valuation looks pretty attractive here.


2. Vishay Intertechnology (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.

On top of its solid Zacks Rank, Vishay is holding an “A” grade in the Value category of our Style Scores system. The stock is trading at just 10.7x earnings and sports a PEG of 1.2 as well as a P/S of 1.1. Plus, it is generating strong earnings estimate revision momentum, as Vishay has watched its full-year EPS estimates improve by 12% within the past 90 days.


3. Cypress Semiconductor (CY)

Cypress Semiconductor is a leading provider of high-performance digital and mixed-signal integrated circuits. It makes products designed for the automotive, industrial, home automation and appliances, consumer electronics and medical products industries.

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 is an explosive growth pick and sports an “A” grade in the Growth category of our Style Scores system. Earnings and projected to improve by over 50% in 2018, and the company has a long-term annual projected EPS growth rate of 16%. CY is low priced and volatile, but it should continue to benefit from secular growth trends like IoT in the long-term—and in the near-term, it pays a healthy dividend to help your portfolio generate cash flow.


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Cypress Semiconductor Corporation (CY) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Mellanox Technologies, Ltd. (MLNX) : Free Stock Analysis Report
Vishay Intertechnology, Inc. (VSH) : Free Stock Analysis Report
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