U.S. Markets closed

Buy Semiconductors on the Dip? 3 Stocks to Consider Now

Ryan McQueeney
Mixed Housing Data for June

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 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. 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 sports a Zacks Rank #2 (Buy) has booked gains of 34% in what has been a difficult 52 weeks for many specialty chipmakers.

Cree is also a pick that investors might like for its growth metrics. For its current fiscal year ending in June, analysts have the company booking earnings growth of 284%. That growth is expected to continue to the tune of another 73% in the next year. Current estimates have revenue growth in these years reaching 11% and 12%, respectively.

This implies Cree might not see the pullback some expect other semiconductors to witness in the near future. One can assume this is because of Cree’s exposure to LEDs, and the fact that smart home and building manufacturing has a lot of potential in the next several years.


2. STMicroelectronics (STM)

STMicroelectronics is a French-Italian semiconductors company that develops circuits and discrete devices for use in microelectronic devices. The company specifically tailors its tiny, low-power technology for use in a wide range of Internet of Things products. The stock currently has a #1 (Strong Buy) rating and looks to have turned a corner after a sluggish year.

STM is already 15% off its 52-week low reached early this month, and with EPS estimates for 2019 back on the rise, there could be no stopping this discounted stock. Shares are trading at just 10.4x earnings and sport a reasonable PEG ratio of 2.1. Moreover, STM looks like one for the future, as analysts have its long-term annualized EPS growth rate pegged at 5.0% right now.


3. Intel Corporation (INTC)

As the world’s largest semiconductor manufacturer, Intel has its hands in nearly every corner of the modern tech world. And as cloud computing and the Internet of Things continue to grow, Intel should continue to benefit. Plus, its broad product portfolio and diverse operations might protect investors in comparison to niche chip makers during trade war uncertainty.

Intel only has a Zacks Rank #3 (Hold) currently, but it does hold an “A” grade for Growth as well as a “B” grade for Value in our Style Scores system. The chip behemoth has fared better than many of its peers over the last year, and part of that is because it has fought hard to win back market share from key competitors. Investors might also find refuge in its relative stability and 2.5% dividend yield. What’s more, the stock looks attractively priced at just 10.7x earnings.



More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
STMicroelectronics N.V. (STM) : Free Stock Analysis Report
Cree, Inc. (CREE) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research