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

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

Investors are willing to pay dearly for growth in this stock market environment. But if you turn away from headlines about large merge

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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 Sunday 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

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