U.S. Markets open in 6 hrs 34 mins

Here's Why Onto Innovation (ONTO) is an Attractive Bet Now

Onto Innovation ONTO is one stock that investors may consider adding to their portfolio to combat the highly-volatile market environment and make some gains from its upside potential.

Let’s look at the factors that make the stock an attractive pick.

Shares Outperformed: Wall Street is facing extreme volatility due to various macroeconomic factors such as rising inflation and interest rate hikes by the Federal Reserve, along with the ongoing Russia-Ukraine war, increased crude oil prices and lingering supply-chain woes.

The above-mentioned factors are taking a toll on major U.S. indices. Year to date, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 have plunged 7.1%, 17.1% and 10.8%, respectively.

In such a scenario, stocks such as Onto Innovation can be a sound addition to one’s investment portfolio. Amid the ongoing volatility, the company’s shares have gained 23.8% in the past year compared with the sub-industry’s 5.5% rise.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Solid Rank: Onto currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northward Estimate Revisions: The Zacks Consensus Estimate of $5.27 per share for fiscal 2022 earnings has increased 2.1% in the past 60 days. For fiscal 2023, the consensus mark for earnings is pegged at $5.72, up 1.1% over the past 60 days.

The company reported second-quarter 2022 earnings of $1.28 per share, up 39% year over year and beating the Zacks Consensus Estimate by 1.6%.

Revenues of $256.3 million beat the Zacks Consensus Estimate by 6.1%. The top line increased 32.5% year over year.

Positive Earnings Surprise History: Onto has an impressive surprise record. Earnings outpaced the Zacks Consensus Estimate in all the trailing four quarters, the average being 8%.

Strong Fundamental Drivers:

Onto Innovation is the leading manufacturer of avant-garde process control tools that perform macro defect inspections and metrology and lithography systems. The company was formed through a merger between Nanometrics Incorporated and Rudolph Technologies on Oct 25, 2019.

The company is well positioned to gain from higher demand from several end markets, particularly advanced nodes, specialty devices and advanced packaging.

Apart from that, its Dragonfly platforms and EB40 module are gaining traction. In the last quarter, the company secured 11 pre-orders for 75 DragonflyG3 systems combined with new EB40 modules, which are expected to be shipped over the next several quarters.

Per company reports, it is one of the largest (by revenues) wafer fab equipment supplier in the United States, providing a wide array of products and applications such as unpatterned wafer quality and advanced packaging lithography. The strong customer acceptance of X500 lithography systems bodes well.

The company invests in research and development to provide differentiated products and services. Recently, it announced the launch of the Echo system to expand its acoustic metrology product line. The Echo system utilizes the picosecond ultrasonics principle to deliver crucial metal film metrology for the DRAM and high-stack NAND memory markets, enabling better memory bandwidth and bit density.

Few Headwinds

Apart from its solid fundamentals, the company is prone to several risks. It plans production and inventory levels based on the internal forecasts of user demand, which are highly volatile in nature.

The company operates in a highly competitive and capital-intensive semiconductor device manufacturing industry, which remain concerns.

Other Stocks to Consider

Some other top-ranked stocks from the broader technology space are Intuit INTU, Badger Meter BMI and Arista Networks ANET. Badger Meter and Arista Networks each sport a Zacks Rank #1 (Strong Buy), whereas Intuit carries a Zacks Rank #2.

The Zacks Consensus Estimate for Intuit’s fiscal 2022 earnings is pegged at $11.72 per share, unchanged in the past 60 days. The long-term earnings growth rate is anticipated to be 15.6%.

Intuit’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average being 16.8%. Shares of INTU have lost 12.1% in the past year.

The Zacks Consensus Estimate for BMI’s 2022 earnings is pegged at $2.30 per share, up 6% in the past 60 days.

Badger Meter’s earnings beat the Zacks Consensus Estimate in three of the preceding four quarters, with the average being 12.6%. Shares of BMI have gained 0.5% of their value in the past year.

The Zacks Consensus Estimate for Arista Network’s 2022 earnings is pegged at $3.99 per share, increasing 8.4% in the past 60 days. The long-term earnings growth rate is anticipated to be 18.6%.

Arista Network’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 10.1%. Shares of ANET have increased 44.7% in the past year.


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
 
Badger Meter, Inc. (BMI) : Free Stock Analysis Report
 
Intuit Inc. (INTU) : Free Stock Analysis Report
 
Arista Networks, Inc. (ANET) : Free Stock Analysis Report
 
Onto Innovation Inc. (ONTO) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research