Micron Technology had the second-lowest price/earnings ratio among stocks in the PHXX Semiconductor Index.
Tomohiro Ohsumi/Bloomberg
The broader market pullback in recent months hasn’t been kind to chip stocks, dragging the PHLX Semiconductor Index down about 16% so far in 2022.
Among the high-profile decliners are Advanced Micro Devices (ticker: AMD) and Nvidia (NVDA), but the pain has been more widespread. II-VI (IIVI) is the only constituent of the index, known as the Sox, with positive year-to-date returns.
That doesn’t mean demand for chips is down—quite the opposite. Global shortages and supply chain disruptions have persisted, so chip stocks are a group that have taken a beating in the market regardless of strong demand for the goods they produce.
It’s an opportunity to find bargains that has only gotten better since Barron’s last looked at the situation.
In December, when we ran a screen that found the 14 cheapest stocks in the Sox in terms of forward price/earnings ratios, the average for the entire index was 30.5 times.
The 14 cheapest chip stocks from that screen, shown below, were recently down 12.7% year to date, on average.
Circling Back
| Company / Ticker | Forward P/E* | YTD Total Return |
|---|---|---|
| Micron Technology / MU | 9.9 | -2.80% |
| Amkor Technology / AMKR | 10 | -8.3 |
| Qorvo / QRVO | 13 | -16.2 |
| Skyworks Solutions / SWKS | 13.5 | -12.7 |
| Intel / INTC | 14.5 | -12.6 |
| Qualcomm / QCOM | 17.7 | -9.3 |
| Microchip / MCHP | 18.3 | -17.2 |
| II-VI / IIVI | 18.5 | 2.9 |
| NXP Semiconductors/ NXPI | 19.3 | -17.8 |
| Applied Materials / AMAT | 19.6 | -17.1 |
| KLA / KLAC | 20 | -17.1 |
| ON Semiconductor / ON | 20.2 | -14 |
| Broadcom / AVGO | 20.3 | -13.2 |
| Lam Research / LRCX | 20.7 | -22.2 |
* As of Dec. 29
Source: Bloomberg
That is better than the broader Sox, as well as the Nasdaq Composite
‘s recent 16% decline. II-VI, which was trading at 18.5 times forward earnings, was the lone winner on that list with a recent year-to-date return of 2.9%. It’s hardly a home run.
While not something to celebrate, it is good news for bargain hunters. Following the pullback, the average forward P/E ratio has fallen to 27.5 times estimated 2022 per-share earnings.
You can find the 15 cheapest chip stocks based on recent levels in the table below.
Cheaper Chips
The 15 lowest price to 2022 estimated earnings ratios in the PHLX Semiconductor Sector Index
| Name / Ticker | Forward P/E | Market Value (bil) | YTD Total Return |
|---|---|---|---|
| Amkor Technology / AMKR | 8.1 | 5.6 | -8.3 |
| Micron Technology / MU | 9.9 | 101.4 | -2.8 |
| Qorvo / QRVO | 10.8 | 14.2 | -16.2 |
| Skyworks Solutions / SWKS | 11.6 | 22.1 | -12.7 |
| Intel / INTC | 12.9 | 182.0 | -12.6 |
| Qualcomm / QCOM | 14 | 187.0 | -9.3 |
| ON Semiconductor / ON | 14 | 25.3 | -14 |
| NXP Semiconductors/ NXPI | 14.4 | 49.8 | -17.8 |
| Microchip / MCHP | 15.9 | 39.9 | -17.2 |
| Applied Materials / AMAT | 16 | 115.7 | -17.1 |
| Lam Research / LRCX | 16.9 | 78.1 | -22.2 |
| KLA / KLAC | 17.3 | 53.6 | -17.1 |
| Broadcom / AVGO | 17.5 | 236.5 | -13.2 |
| Texas Instruments / TXN | 18 | 153.9 | -11 |
| Analog Devices / ADI | 19.2 | 84.2 | -8.5 |
Source: Bloomberg
Amkor Technology (AMKR) and Micron Technology switched places but are still the two cheapest chip manufacturers. Shares of both have fared better than their peers, recently down 8.3% and 2.8% year to date, respectively. Qorvo (QRVO) and Skyworks Solutions still rank fourth and fifth, respectively.
Shares of Intel (INTC), which claimed the fifth slot in both screens, were down 12.6% year to date. Last week, the firm’s analyst day made it clear that Intel’s yearslong turnaround plan will be expensive. That said, Raymond James analyst Chris Caso upgraded the stock on Wednesday to Market Perform from Underperform, arguing his bearish thesis had played out.
At the sixth slot, Qualcomm (QCOM) has fallen 9.3% even though the mobile-phone chip firm’s quarterly results beat estimates.
ON Semiconductor (ON), NXP Semiconductors (NXPI), Microchip (MCHP), Applied Materials (AMAT), Lam Research (LRCX), KLA (KLAC), and Broadcom (AVGO) remained on the list after posting double-digit drops.
Analog Devices (ADI) and Texas Instruments (TXN) are new entrants, following declines of 8.5% and 11%, respectively. Analog Devices
‘ earnings report last week was a positive sign, and included a better-than-expected forecast. Despite better-than-expected results for Texas Instruments in January, Caso, the Raymond James analyst, cut his rating to Market Perform from Outperform earlier this month, citing the firm’s spending plans.
It’s important to note that a screen is more of a jumping-off point for investors to spot overlooked picks. A cheap stock could be cheap for a reason, while an expensive stock may have plenty of upside if its growth prospects improve. Still, following the recent pullback, it may be easier to spot bargains.
Write to Connor Smith at [email protected]
