The global semiconductor shortage that’s been a pain in many people’s necks throughout this year is going to last 2022. So as the saying goes: If you can’t beat them, join ’em.
A lack of chips has led to shortages of products ranging from electronics and computers to cars and higher prices. However, on balance, the chip shortage hasn’t hurt the semiconductor sector. The iShares Semiconductor exchange-traded fund (SOXX) is up about 18% year to date, in line with comparable gains of the S&P 500.
The sector has kept up even as shares of the largest companies in the ETF— Intel (INTC) and Broadcom (AVGO)—have underperformed. That pair is up about 9% and 14% year to date, respectively, lagging behind the industry and broader market.
The shortage isn’t going away soon. Only Monday, auto parts supplier Aptiv (APTV) cut sales and earnings guidance for 2021. About 3 million cars that were expected to be built and sold aren’t going to roll off assembly lines because of a lack of chips, the company said.
Investors can make the persisting shortage work for their portfolios by looking at Wall Street’s favorite chip-sector stocks. There are 14 stocks in the chip sector with above-average Buy-rating ratios and are trading with at least 30% upside compared with their average analyst target price.
The 14 stocks, listed by descending order of upside, are: specialty gas services provider Ultra Clean (ticker: UCTT), wafer equipment makers FormFactor (FORM), processing materials company CMC Materials (CCMP), chip designer Cirrus Logic (CRUS), equipment maker MKS Instruments
(MKSI), light-emitting diode technology company Universal Display (OLED), semi-test company ASE Technology (ASX), memory maker Micron Technology (MU), mobile chip giant Qualcomm (QCOM), semi test and robot equipment maker Teradyne (TER), chip fabrication giant Taiwan Semiconductor Manufacturing (TSM), mobile chip makers Skyworks Solutions (SWKS), Qorvo (QRVO), and equipment maker Lam Research (LRCX).
Chips With Upside
The majority of analysts have Buy ratings on these chip stocks—and think shares can climb at least 30%.
| Name / Ticker | Buy-rating Ratio | Recent Price | Target Price | Upside |
|---|---|---|---|---|
| Ultra Clean / UCTT | 100.00% | $43.07 | $71.33 | 66% |
| FormFactor / FORM | 77.80 | 36.20 | 48.89 | 35 |
| CMC Materials / CCMP | 57.10 | 121.55 | 159.29 | 31 |
| Cirrus Logic / CRUS | 84.60 | 80.52 | 105.83 | 31 |
| MKS Instruments / MKSI | 80.00 | 143.84 | 213.00 | 48 |
| Universal Display / OLED | 75.00 | 171.89 | 251.00 | 46 |
| ASE Technology / ASX | 66.70 | 6.80 | 9.70 | 43 |
| Micron / MU | 81.80 | 69.96 | 98.32 | 41 |
| Qualcomm / QCOM | 74.30 | 125.89 | 175.75 | 40 |
| Teradyne / TER | 68.80 | 109.28 | 145.73 | 33 |
| Taiwan Semi / TSM | 70.00 | 111.22 | 146.95 | 32 |
| Skyworks / SWKS | 62.10 | 161.39 | 213.68 | 32 |
| Qorvo / QRVO | 71.40 | 165.81 | 219.48 | 32 |
| Lam Research / LRCX | 70.40 | 556.82 | 725.15 | 30 |
Source: Bloomberg
The average Buy-rating ratio for the 14 stocks is about 75%. The average upside is almost 40%. Wall Street is more bullish today than it was a year ago. Before the chip shortage was daily news, the average upside for the group of 14 was about 12%.
Accelerating earnings growth is one reason for optimism. For the group, earnings are expected to grow about 18% a year on average, up from about 12% average annual growth posted over the past three years.
While these stocks in the chip sector look like they still have to run despite supply chain woes, a stock screen is just a starting point for more research.
Write to [email protected]
