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. 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 #2 (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 growth expected to finish at 114% and 25%, respectively, this year. Plus, considering the company’s P/E of 18.7 and PEG of 0.9, the valuation looks pretty decent here.
2. 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 #1 (Strong Buy) and has booked gains of 17% in what has been a difficult year for specialty chipmakers.
Cree is another pick that investors might like for its growth metrics. For its current fiscal year ending next June, analysts have the company booking earnings growth of 284%. That growth is expected to continue to the tune of another 74% 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.
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 has a Zacks Rank #1 (Strong Buy) and “B” grades for Value and Growth in our Style Scores system. The chip behemoth has fared better than many of its peers this 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. Moreover, the stock looks attractively priced at just 10.6x earnings.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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