MW-IO479_SOXXSP_20200915081701_NS.png

Deep Dive: Semiconductor stocks are hot, and these numbers say they have more room to run

This post was originally published on this site

Investors are willing to pay dearly for growth in this stock market environment. But if you turn away from headlines about large merger deals, you may be surprised that some chip makers are trading at valuations well below that of the S&P 500 Index, which includes plenty of slow-growing companies.

Nvidia Inc. US:NVDA  made a big splash Monday when it announced a $40 billion deal to acquire Arm Holdings. This would broaden Nvidia’s manufacturing scale, setting it up to better compete with Intel Corp. US:INTC  and Advanced Micro Devices Inc. US:AMD. Nvidia’s stock has risen so much that it trades for 51.5 times the consensus earnings estimate among analysts polled by FactSet. That’s up from 33.9 at the end of 2019.

In June, we looked at the components of the iShares PHLX Semiconductor ETF US:SOXX, which holds all 30 stocks in the PHLX Semiconductor Index US:SOX. At the time, the semiconductor group was recovering more rapidly from the coronavirus doldrums of March than the S&P 500 Index was.

SOXX has accelerated, relative to the broader market, since then. Here’s how the ETF has performed this year against the SPDR S&P 500 ETF US:SPY :

The semiconductor group is outpacing the S&P 500 this year.

FactSet

Semiconductor group is cheap

Here’s a chart comparing forward price to earnings ratios, based on consensus earnings estimates for the subsequent 12 months on a rolling basis among analysts polled by FactSet for SOXX and the S&P 500 Index US:SPX :

FactSet

As of the close Sept. 14, SOXX was trading for 19.8 times forward earnings estimates — the same price-to-earnings (P/E) ratio it had Dec. 31. Meanwhile, the forward P/E for the S&P 500 US:SPX  has increased to 22.1 from 18.3 at the end of 2020.

Based on the most recent quarterly results available through Sept. 14, two-thirds of the SOXX 30 showed increases in revenue for their most recently reported quarter from a year earlier. In comparison, only about a third of the S&P 500 showed year-over-year increases in quarterly sales.

Here are the 30 SOXX stocks, listed by their percentage of the ETF’s portfolio, along with current forward P/E ratios, those at the end of 2019, quarterly sales-growth figures and year-to-date total returns. You will need to scroll the table at the bottom, to the right, to see all the data:

Company Ticker P/E ratio P/E ratio – Dec. 31, 2019 Quarterly sales growth Total return – 2020 Share of SOXX portfolio
Nvidia Corp. US:NVDA   51.5 33.9 50% 119% 9.8%
Qualcomm Inc. US:QCOM   19.6 21.1 -49% 31% 9.5%
Broadcom Inc. US:AVGO   14.5 13.6 6% 18% 8.4%
Texas Instruments Inc. US:TXN   27.9 27.4 -12% 10% 7.9%
Taiwan Semiconductor Manufacturing Co. ADR US:TSM   26.9 21.9 34% 40% 5.4%
Intel Corp. US:INTC   11.5 12.9 20% -16% 5.3%
Advanced Micro Devices Inc. US:AMD   55.1 42.6 26% 70% 4.9%
NXP Semiconductors NV US:NXPI   23.5 15.9 -18% 0% 4.1%
Lam Research Corp. US:LRCX   14.6 17.9 18% 5% 3.8%
Micron Technology Inc. US:MU   14.1 18.7 14% -9% 3.5%
Analog Devices Inc. US:ADI   21.3 25.0 -2% -2% 3.4%
Applied Materials Inc. US:AMAT   12.3 16.4 23% -7% 3.4%
ASML Holding NV ADR US:ASML   35.0 29.5 27% 25% 3.3%
KLA Corp. US:KLAC   15.8 17.7 16% 1% 3.3%
Marvell Technology Group Ltd. US:MRVL   34.7 35.0 11% 48% 3.1%
Microchip Technology Inc. US:MCHP   17.1 18.8 -1% -1% 3.0%
Xilinx Inc. US:XLNX   35.0 31.4 -14% 5% 2.9%
Skyworks Solutions Inc. US:SWKS   21.3 18.7 -4% 15% 2.7%
Maxim Integrated Products Inc. US:MXIM   27.0 26.4 -2% 10% 2.1%
Qorvo Inc. US:QRVO   17.2 19.3 2% 6% 1.7%
Teradyne Inc. US:TER   21.7 21.1 49% 13% 1.5%
Monolithic Power Systems Inc. US:MPWR   49.1 39.8 23% 40% 1.3%
Entegris Inc. US:ENTG   27.0 22.1 18% 36% 1.1%
ON Semiconductor Corp. US:ON   22.1 16.6 -10% -10% 1.1%
Cree Inc. US:CREE   N/A N/A -18% 36% 0.8%
MKS Instruments Inc. US:MKSI   14.7 19.9 15% -5% 0.7%
Cabot Microelectronics Corp. US:CCMP   20.8 20.6 1% 2% 0.5%
Silicon Laboratories Inc. US:SLAB   34.0 34.7 0% -16% 0.5%
Semtech Corp. US:SMTC   30.0 32.5 5% 6% 0.4%
Cirrus Logic Inc. US:CRUS   18.1 26.1 2% -27% 0.4%
Source: FactSet

You can click on the tickers for more about each company.

Qualcomm Inc. US:QCOM, the second-largest holding of SOXX, had a 49% decline in fiscal third-quarter earnings, because the year-earlier quarterly revenue of $9.64 billion included $4.7 billion from a settlement with Apple and contract manufacturers, and $150 million in revenue from an interim agreement with Huawei. Excluding those items, Qualcomm’s $4.89 billion in revenue for the fiscal third quarter of 2020 would have been up 2% from a year earlier.

Here’s a summary of ratings and consensus price targets for the group:

Company Ticker Share ‘buy’ ratings Share neutral ratings Share ‘sell’ ratings Closing price – Sept. 14 Consensus price target Implied 12-month upside potential
Nvidia Corp. US:NVDA   81% 14% 5% $514.89 $553.93 8%
Qualcomm Inc. US:QCOM   64% 29% 7% $113.46 $122.18 8%
Broadcom Inc. US:AVGO   84% 16% 0% $362.20 $401.31 11%
Texas Instruments Inc. US:TXN   39% 45% 16% $138.53 $141.12 2%
Taiwan Semiconductor Manufacturing Co. ADR US:TSM   87% 6% 7% $80.50 $69.37 -14%
Intel Corp. US:INTC   30% 45% 25% $49.41 $57.22 16%
Advanced Micro Devices Inc. US:AMD   39% 53% 8% $77.90 $78.32 1%
NXP Semiconductors NV US:NXPI   71% 29% 0% $125.70 $130.38 4%
Lam Research Corp. US:LRCX   87% 13% 0% $305.42 $406.52 33%
Micron Technology Inc. US:MU   76% 21% 3% $49.03 $64.06 31%
Analog Devices Inc. US:ADI   78% 22% 0% $114.62 $138.80 21%
Applied Materials Inc. US:AMAT   76% 24% 0% $56.46 $77.52 37%
ASML Holding NV ADR US:ASML   58% 33% 9% $367.94 $412.20 12%
KLA Corp. US:KLAC   37% 63% 0% $178.08 $218.13 22%
Marvell Technology Group Ltd. US:MRVL   75% 21% 4% $39.22 $41.42 6%
Microchip Technology Inc. US:MCHP   79% 21% 0% $102.21 $119.24 17%
Xilinx Inc. US:XLNX   31% 58% 11% $101.72 $110.34 8%
Skyworks Solutions Inc. US:SWKS   64% 36% 0% $137.79 $146.60 6%
Maxim Integrated Products Inc. US:MXIM   16% 84% 0% $66.35 $74.97 13%
Qorvo Inc. US:QRVO   64% 36% 0% $122.84 $140.50 14%
Teradyne Inc. US:TER   35% 53% 12% $76.82 $89.32 16%
Monolithic Power Systems Inc. US:MPWR   83% 9% 8% $247.60 $285.22 15%
Entegris Inc. US:ENTG   70% 30% 0% $67.65 $75.78 12%
ON Semiconductor Corp. US:ON   54% 35% 11% $22.01 $23.98 9%
Cree Inc. US:CREE   13% 80% 7% $62.64 $65.46 5%
MKS Instruments Inc. US:MKSI   82% 18% 0% $104.41 $147.82 42%
Cabot Microelectronics Corp. US:CCMP   20% 60% 20% $146.16 $160.50 10%
Silicon Laboratories Inc. US:SLAB   58% 42% 0% $96.87 $114.60 18%
Semtech Corp. US:SMTC   77% 23% 0% $56.23 $63.69 13%
Cirrus Logic Inc. US:CRUS   64% 36% 0% $60.04 $82.63 38%
Source: FactSet

Don’t miss:Did you miss out on Tesla’s big run? There are still good alternatives to play the electric-car revolution