SWKS - The Semiconductor Investor's Dream Team: 3 Overlooked Stocks to Buy Now
2024-05-23 13:26:51 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Overlooked semiconductor stocks still have significant potential. A projected chip shortage and efforts to diversify production from Taiwan’s leading foundries, such as Taiwan Semiconductor Manufacturing (NYSE: TSM ), support these companies’ valuations.
The good news for investors is that overlooked semiconductor stocks often have lower valuations and smaller market caps than TSM. While they may be riskier, they also offer the prospect of substantial upside.
Overlooked semiconductor stocks can sometimes offer niche or narrow-market appeal and thus have a lower total addressable market than the giants. Still, on a total return basis, they may offer a stronger and more certain upside, making them good options for investors playing the long game.
So, let’s explore three lesser-known semiconductor stocks that could multiply your capital.
Skyworks Solutions (SWKS)
Skyworks Solutions (NASDAQ: SWKS ) designs and manufactures semiconductors for wireless communications.
SWKS reported Q1 CY2024 revenue of $1.05 billion, a 9.3% year-over-year decline, matching analysts’ expectations. The non-GAAP EPS was $1.55, slightly above the $1.52 estimate. However, the Q2 revenue guidance of $900 million is 12.1% below analysts’ estimates of $1.02 billion. The company’s gross margin dropped to 40.2% from 45.7% last year, with inventory days outstanding at 122, consistent with the previous quarter.
I feel that SWKS is an overlooked semi stock because we haven’t yet tapped into its most explosive tailwinds, namely 5G, IoT and the growing mobile market.
According to Statista, the United States is a global leader in the rollout and adoption of 5G technology. In 2022, 45% of U.S. mobile connections used 5G, projected to exceed 90% by 2030. The adoption of 5G is expected to drive significant economic growth, contributing $1.5 trillion to GDP and creating 16 million jobs.
Comparatively, other nations (especially developing ones) haven’t even started to roll out 5G, so there’s still plenty of gas in the tank from this particular segment alone for SWKS to continue to surge to new heights.
Microchip Technology (MCHP)
Microchip Technology (NASDAQ: MCHP ) provides microcontrollers and analog semiconductors.
Analog semiconductors are universal as they process real-world signals like temperature, sound and light into digital data. As such, they can be found in countless devices, thus giving MCHP a broad addressable market to cater to.
MCHP shares initially dropped at the start of the year after the company lowered its revenue outlook due to weak demand caused by economic conditions but rebounded later as Jefferies analysts raised their price target to $100 from $90. They highlighted the company’s potential to benefit from an “ Analog Renaissance ” and the shift towards parallel processing and IoT applications.
Analog semiconductors have longer product cycles, often 5-7 years, than digital semiconductors. This can stabilize their performance over more extended periods. However, they sometimes lag behind them during times of high disruption, such as what we’ve witnessed over the past two years in the case of AI, flying cars and the increased pace of the electrification of vehicles.
MCHP could then be seen as not a trendy option in the market but one that can embed itself deeply into the segment it serves.
Marvell Technology (MRVL)
Marvell Technology (NASDAQ: MRVL ) develops and produces semiconductors for data infrastructure. The company’s focus is on data centers and enterprise networking.
MRVL met Wall Street’s earnings expectations for its fiscal fourth quarter but issued weaker-than-expected guidance for the current period. Marvell’s forecast for the current quarter of 23 cents per share on sales of $1.15 billion was well below Wall Street’s estimates of 41 cents per share on sales of $1.38 billion.
There is still reason for considerable optimism for owning MRVL’s shares, and it is an underappreciated pick. Analysts are forecasting volatile but consistent EPS growth in the years ahead, notably in FY2025, where its EPS is set to soar by 89.87%, according to the consensus of 20 analysts.
The consensus among analysts for MRVL is also very strong, with only one “Hold” rating and 28 “Buy” or “Strong Buy” ratings, which suggests that its stock price increase estimate of 17.98% will hold over the next twelve months.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
Matthew started writing coverage of the financial markets during the crypto boom of 2017 and was also a team member of several fintech startups. He then started writing about Australian and U.S. equities for various publications. His work has appeared in MarketBeat, FXStreet, Cryptoslate, Seeking Alpha, and the New Scientist magazine, among others.
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