Semiconductor stocks have been battered by recent market-wide volatility and 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 buy-ranked semiconductor stocks right now:
1. Semtech Corporation (SMTC)
Semtech is a supplier of analog and mixed-signal semiconductors for high-end consumer, enterprise, industrial, and communications computing. Thinking about the aforementioned growth trends, Semtech has exposure to the right businesses in order to capitalize. This explains why the stock is one of the highest-flying chipmakers of 2018, adding nearly 42% on the year.
SMTC is currently sporting a Zacks Rank #1 (Strong Buy) and a “B” grade in the Growth category of our Style Scores system. The firm recently topped earnings estimates for the 11th consecutive quarter and is now projected to see full-year EPS growth of 19%.
Semtech also sports a long-term projected earnings growth rate of 5%. The stock is trading with a P/E of 22.2 right now, and although that is a bit stretched, investors might be willing to pay more for its growth and momentum characteristics.
2. 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 has a Zacks Rank #1 (Strong Buy) right now.
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 15.1 and PEG of 0.8, the valuation looks pretty attractive here.
3. 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 9x earnings and sports a PEG of 1.0 as well as a P/S of 0.9. 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.
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