Merrill Lynch's Top Semiconductor Stocks to Buy

The two analysts continue to be positive on the semiconductor sector. They see tailwinds from a macroeconomic pick-up, rising content in all end markets, a disciplined supply chain and an accelerating pace of consolidation among the 60 or so semiconductor companies that are vying for a $300 billion market.

Analog Devices Inc. (NASDAQ: ADI) was given a $64 price target, versus a consensus of closer to $57 and a $55.13 close. This is valuing it at 21.5 times 2015 expected earnings, a slight premium to its five-year median. This is due to structural growth opportunities in auto, industrial and wireless infrastructure, a defensive business model and a lowered consumer exposure. Investors also get a 2.6% dividend yield.

Intel Corp. (NASDAQ: INTC) was featured positively after its latest revenue guidance was hiked. Merrill Lynch has a $34 price objective, based on 16.2 times the expected 2015 earnings estimates. This valuation is slightly below the earnings midpoint value due to Intel having a slower growth on the top line. The consensus price target is $29.64, and Intel has a 3% dividend yield.

Avago Technologies Ltd. (NASDAQ: AVGO) was given an $85 price target, based on 15 times the 2015 expected earnings and on $200 million to $250 million in cost synergies with LSI. It trades at $71 now, and the consensus price target is almost $80. Its dividend yield is 1.6%.

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NXP Semiconductors N.V. (NASDAQ: NXPI) was given a $76 price objective. It is at $63 now, and the consensus price target is a dime under $70. This call is based on a sum of parts analysis with high growth and high value in identification and security, as well as consumer and traditional analog. NXP does not have a dividend.

RF Micro Devices Inc. (NASDAQ: RFMD) was given a $11 price target, up from a $9.85 close and from a consensus price target of almost $10.50. The Merrill Lynch target is based on only 14 times expected 2015 earnings. This is a premium to its five-year historical median due to the synergies with TriQuint. RF Micro pays no dividend.

Skyworks Solutions Inc. (NASDAQ: SWKS) was given a $55 price target, based on 15-times expected 2015 earnings. The stock closed at $47.53 and its consensus price target is just a few cents under $51.94. Merrill Lynch’s upside view is based on improving industry fundamentals, new products, a higher exposure in China and a diversified high-performance analog business offset by customer concentration at large original equipment manufacturers and stiff competition in the RF marketplace for key high-volume sockets.