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4 Chip Stocks to Buy for a Year-End Rally

4 Chip Stocks to Buy for a Year-End Rally

Posted On December 17, 2021 2:26 pm
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Analysts expect the ongoing semiconductor shortage to last through next year. However, the global semiconductor industry delivered a 24% year-over-year sales growth in October 2021. Also, the possibility of the House’s passage of the $52 billion CHIPS Act by the end of this year and increasing corporate investments to ramp up chip production is likely to ease the situation by the end of 2022. The growing investor optimism in this space is evident in the SPDR S&P Semiconductor ETF’s (XSD) 16.8% gains over the past three months, surpassing the SPDR S&P 500 Trust ETF’s (SPY) 5.1% returns.

Moreover, consistent chipmaking breakthroughs should foster the industry’s long-term growth. The global semiconductor chips market is expected to grow at 7.8% CAGR and reach $553.60 billion by 2026.

Given this backdrop and the ongoing volatility in the market, fundamentally-sound and undervalued chip stocks Micron Technology, Inc. (MU – Get Rating), NXP Semiconductors N.V. (NXPI – Get Rating), ON Semiconductor Corporation (ON – Get Rating), and Kulicke and Soffa Industries, Inc. (KLIC – Get Rating) are likely to witness a rally in the near-term.

Micron Technology, Inc. (MU – Get Rating)

MU designs, manufactures, and sells memory and storage products worldwide. The company operates through computer and networking, mobile, storage, and embedded business units. It sells dynamic random access memory chips (DRAMs), static random access memory chips (SRAMs), flash memory, semiconductor components, and memory modules to various end markets.

On December 1, 2021, MU expanded its business relationship with United Microelectronics Corporation (UMC), which helps MU to secure supply for automotive, mobile, and critical customers into the future and increase collaboration across the semiconductor industry. This expansion will also help MU deliver its industry-leading memory and storage solutions to its customers globally.

MU’s non-GAAP revenue for its fiscal fourth quarter, ended September 2, 2021, increased 36.6% year-over-year to $8.27 billion. The company’s non-GAAP gross profit came in at $3.96 billion, indicating an 87.8% rise from the prior-year period. Its non-GAAP operating income was $3.07 billion, up 136% from its year-ago period. While its non-GAAP net income increased 126% year-over-year to $2.78 billion, its non-GAAP EPS increased 124.1% to $2.42. As of September 2, 2021, the company had $7.83 billion in cash, cash equivalents, and restricted cash.

Analysts expect the stock’s EPS to increase 45% year-over-year to $8.79 in the current year. The consensus revenue estimate of $31.89 billion for the current year represents a 15.1% rise from the prior-year period. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. MU’s EPS is expected to grow at a rate of 22.3% per annum over the next five years.

The stock has gained 17.1% over the past year and 4.2% over the past six months. It closed yesterday’s trading session at $85.66. MU’s 0.46x non-GAAP forward PEG is 71.4% lower than the 1.62x industry average. In terms of forward EV/EBITDA, MU is currently trading at 5.04x, 67.7% lower than the industry average of 15.62x. The stock’s total assets grew at a CAGR of 10.7% over the past three years.

It is no surprise that MU has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an A grade for Momentum, and a B grade for Growth, Value, and Quality. Click here to see the additional ratings for MU’s Stability and Sentiment.

MU is ranked #9 of 100 stocks in the A-rated Semiconductor & Wireless Chip industry.

NXP Semiconductors N.V. (NXPI – Get Rating)

NXPI is a Netherlands-based company that designs semiconductors and software for mobile communications, consumer electronics, security applications, in-car entertainment, and networking. The company sells its products to automotive, identification, wireless infrastructure, lighting, mobile, and computing applications.

On November 10, 2021, NXPI collaborated with the…

 

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