One of the major stories over the past couple of months is the semiconductor shortage. This has been a persistent problem for a variety of industries such as computer hardware, automakers, and home appliances.
According to Susquehanna Financial Group, semiconductor lead times have increased to 18 weeks from 13 at the start of the year. Another indication of tight supply is many companies raising prices with the latest example being Taiwan Semiconductor increasing prices by 20%.
While the tight supply conditions of the chip industry have negative implications for many industries, it’s certainly positive for chip stocks. We’ve already seen impressive gains in many names as the VanEck Vectors Semiconductors ETF (SMH – Get Rating) is up 14.5% since mid-May, while one of the leading chip companies – NVIDIA (NVDA – Get Rating) is up by more than 40%. However, going forward I expect some of the laggards in the industry to outperform, such as Semtech (SMTC – Get Rating), Diodes (DIOD – Get Rating), and Amkor Technology (AMKR – Get Rating).
SMTC designs and manufactures semiconductor products that are used in various industries including networking, cloud computing, communications, and industrials. Its mixed-signal and analog semiconductor products can be categorized into four segments – Signal Integrity, Protection, Wireless and Sensing, and Power and High- Reliability.
The company has partnered with several high-profile companies and organizations such as Amazon (AMZN) and the US Department of Defense. This is a testament to the quality of its products and management.
Like most semiconductor stocks, it’s benefitted from industry conditions as its last earnings report showed a 51% increase in earnings and 28% revenue growth compared to 2020’s fiscal Q1. The company noted growth in all categories and is also benefiting from the 5G upgrade cycle.
SMTC’s POWR Ratings reflect this bullish outlook as it is rated a B which translates to a Buy rating. B-rated stocks have posted an average annual return of 19.7% which compares favorably to the S&P 500’s annual 7.1% gain.
The POWR Ratings also evaluates stocks by components. Thus, it’s not surprising to see that SMTC has a B for Growth given that analysts are expecting 18% earnings growth and 23% sales growth over the next 12 months. To see more of SMTC’s component grades, click here.
DIOD is a manufacturer and supplier of products within the discrete, logic, analog, and mixed-signal semiconductor markets. These products include diodes, transistors, and rectifiers, and it sells to the consumer electronics, computing, communications, industrial, and automotive markets, among others.
In its last quarter, DIOD had its fourth straight quarter of topping earnings estimates. It reported $0.93 in earnings per share, while analysts were looking for $0.78 per share. Revenue also beat expectations by 3% and was a 47% increase from last year. This strong earnings growth means…
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