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
(ticker: SOXX) is up about 18% year to date, in line with comparable gains of the
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 (UCTT), wafer equipment maker
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).
|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|
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 Al Root at [email protected]