Semiconductor sector on fire: 3 to be supplied under the radar shares

After a difficult 2018, chip stocks are back this year with a vengeance, mainly stimulated by a revival in the data center segment. Adding to the buoyancy is the demand of new technologies and a large number of emerging trends such as 5G wireless, artificial intelligence, self-driving cars and the internet of things.

The two semiconductor sector ETF & # 39; s, VanEck Vectors Semiconductor Fund (NYSE 🙂 and the iShares Philadelphia Semiconductor Index ETF () increased by 21.7% and 20.5% respectively, both significantly better than the wider one market.

While sector heavyweights such as Intel (NASDAQ :), NVIDIA (NASDAQ :), Broadcom (NASDAQ :), Texas Instruments (NASDAQ 🙂 and Qualcomm (NASDAQ 🙂 collect the most attention from investors, there are a number of among -the radar shares associated with the sector whose shares have experienced breathtaking growth in the past year. Here are three that we think can offer some of the best long-term profits, given their dominant position in the cyber security arena.

1. Xilinx

Programmable chip maker Xilinx (NASDAQ :), which develops various types of integrated circuits, is 68.4% year-to-date. It closed last night at $ 126.31, not far from its highest point ever reaching $ 127.81 on March 20.

The San Jose, California-based company benefits from a healthy sale of chips for data centers and 5G wireless networks. Those networks – up to 100 times faster than the existing ones – will generate billions of dollars for equipment and chips.

"The start of this driveway [up of 5G spending] is happening faster than we thought," said Xilinx CEO Victor Peng about the company's quarterly profit on January 23. "And the power to come out of the gate is pretty strong. & # 39;

Xilinx has also seen a robust demand for its other 5G products, such as a one-chip combination of analogue radio chips and digital processors that want to replace various components produced by analysts such as Analog Devices (NASDAQ 🙂 and Texas Instruments.

"This integration should make the Xilinx design more sticky," says Tristan Gerra, a senior research analyst at RW Baird. "We think Xilinx will still see design win activities for 5G in the coming years."

2. Lattice Semiconductor

Lattice Semiconductor (NASDAQ :), based in Oregon, produces high-quality programmable logic devices. The company is ranked number three on the global market share of FPGA (Field Programable Gate Array) devices.

The shares of Lattice Semiconductor that ended on Wednesday at $ 12.65 have more than doubled in the past year and reached 108%. The shares had a 15-year high point of $ 13.17 on March 15. 11. Shares of the chip maker have shed a tear since the company's report on February 12 achieved impressive earnings growth and sales that were significantly better than market expectations, driven by growth in communication and computing.

For the first quarter of 2019, Lattice expects sales between $ 94 million and $ 98 million, prior to the consensus analyst estimate of $ 93.7 million. "Despite the uncertainty in the current macroeconomic environment," said Jim Anderson, the chief executive of the company, "we are positioned to take advantage of multiple catalysts in our company over the long term, including growth in computers, industry and automotive, and the global 5G buildoutout. "

3. KLA-Tencor

KLA-Tencor Corporation (NASDAQ 🙂 is a global capital equipment company based in Milpitas, California. It provides process management and revenue management systems for the semiconductor industry and other related nanoelectronics industries.

The shares, which have risen 34% since the beginning of the year, ended yesterday at $ 119.93 and went back to the record high of $ 122.40 that the stock reached in July 2018. According to JPMorgan analyst Harlan Sur , the big rally in KLA Tencor shares so far this year has just begun. He has upgraded his stock rating to Overweight from a & # 39; non-rated & # 39; designation, thereby referring to the strong competitive position in various areas with chip equipment.

"With leadership scenarios about semiconductors (process control and specialized semi-end markets), PCB [printed circuit board] and display, we expect KLAC to outperform peers and the broader market," he wrote in a note on March 7 . . "Despite a strong performance from YTD, we still expect a significant benefit from this and we recommend accumulating shares. Sur & # 39; s price target for KLA-Tencor for December 2019 is $ 160, which by the end of the year about 25% more.

He credits the leading profitability statistics of the company with more than 60% gross profit margins and more than 35% operational profit margins for his call. In addition, he adds that the maker of chip equipment is exposed to some of the latest trends in the latest technology, including 5G smartphones, 5G infrastructure equipment, autonomous driving sensors, and cloud computing hardware. He therefore predicts that KLA-Tencor can increase earnings per share by 15% to 20% per year over the next three years.

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