Semiconductor stocks were battered by the recent market sell-off, but tech has made a strong recovery, and with several interesting trends like the Internet of Things and artificial intelligence on the rise, it is still an exciting time to be investing in chip-making corner of the technology sector.
While tech behemoths like Microsoft MSFT and Apple AAPL may hog all the headlines, it has really been the companies powering their technologies—the semiconductor manufacturers—that have been garnering the attention of Wall Street.
Indeed, as our “Computer and Technology” sector has gained nearly 19% over the past year, semiconductor companies have been a driving factor behind its growth. The aforementioned emerging tech trends have created new consumer demand, and the semiconductor makers are delivering.
Luckily, the proven Zacks stock picking methods are effective across all industries. Check out these Zacks Rank #1 (Strong Buy) semiconductor stocks right now:
1. Texas Instruments Incorporated TXN
Although you might recognize the brand because of its calculators, Texas Instruments is actually one of the leading suppliers of advanced semiconductors in the world. It functions as one of the top players in the analog IC and embedded processor fields. The company has also developed into a major IoT pick, reporting year-over-year sales growth of 20% in the unit that handles this business during its most recent quarter.
Meanwhile, the semiconductor firm surpassed revenue estimates and released in-line guidance. This has led to more bullish analyst sentiment and propelled the stock to a Zacks Rank #1 (Strong Buy). The stock also has a Forward P/E of 20.5 and a PEG of 2.1, so investors are getting a decent price for its earnings and earnings growth outlook.
It is also worth noting that TXN offers investors a dividend yield of about 2.3% right now.
2. Applied Materials, Inc. AMAT
Applied Materials is one of the world’s largest suppliers of fabrication equipment to semiconductor, LCD, and solar PV cell manufacturers. When the semiconductor business is booming, Applied benefits as its clients demand new equipment and services.
On top of its #1 (Strong Buy) designation, AMAT is also presenting some interesting valuation metrics. The stock is trading at just over 12.5x forward earnings, and with its PEG ratio of 0.9, investors can see that they are getting a great price for its earnings growth potential.
Applied is scheduled to release its latest quarterly earnings results later this week. Based on our latest Zacks Consensus Estimates, analysts expect the firm to see adjusted earnings growth of 43% and total revenue growth of 26%. Also, our Most Accurate Estimate for earnings—which only accounts for the most recent analyst projections—sits higher than the consensus, indicating that sentiment has warmed recently.
3. Mellanox Technologies, Inc. MLNX
Mellanox Technologies is a leading supplier of semiconductor-based, interconnected products to world-class server, storage, and infrastructure OEMs. The company’s VPI enables standard communication protocols to operate over any converged network with the same software solution.
MLNX has started to pick up steam after its fourth consecutive earnings beat. It is also an explosive growth pick, with earnings and revenue expected to improve by 78% and 19%, respectively, this year. Shares are currently trading with a reasonable Forward P/E of 20.8 and an attractive PEG of 1.4.
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don’t buy now, you may kick yourself in 2020.
