A new Stifel research report acknowledges for the most part all of the above. The analysts also point out that the big merger and acquisition deals that drove valuations higher in the first half of the year will stay in place to some degree, but they will be less of a driving force going forward. Stifel also thinks investors will start to shun the chip companies with high debt on their balance sheets.
Stifel points to four specific stocks it feels currently trade at relatively attractive valuations. All are rated Buy at the firm as well.
Intersil
This stock has rallied nicely off lows printed during the late August sell-off and could be offering an excellent entry point. Intersil Corp. (NASDAQ: ISIL) is a leading provider of innovative power management and precision analog solutions. Its products form the building blocks of increasingly intelligent, mobile and power-hungry electronics, enabling advances in power management to improve efficiency and extend battery life. Intersil is a trusted partner to leading companies in some of the world’s largest markets, including industrial and infrastructure, mobile computing, automotive and aerospace.
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Intersil recently introduced its latest power saving solutions for two-in-ones, ultrabooks and tablets: the new highly integrated power management chip and the matching battery charger. Both devices meet Intel’s IMVP8 specifications to support its new Skylake 6th Gen Intel Core processors. The new products leverage Intersil’s patented R3 modulation technology, which delivers best-in-class light load efficiency, superior regulation accuracy and fast dynamic response, resulting in better system power management and longer battery life.
Intersil shareholders are paid a very nice 3.93% dividend. The Stifel price target for the stock is $16, and the Thomson/First Call consensus target is $13.83. The stock closed Monday at $12.15.
Microsemi
This is a company that could benefit from continued industrial demand. Microsemi Corp. (NASDAQ: MSCC) offers a comprehensive portfolio of semiconductor and system solutions for communications, defense and security, aerospace and industrial markets. Products include high-performance and radiation-hardened analog mixed-signal integrated circuits; power management products; timing and synchronization devices and precise time solutions, setting the world’s standard for time; voice processing devices; RF solutions; discrete components; security technologies and scalable anti-tamper products; Ethernet solutions; and power-over-Ethernet ICs and midspans.
The company was added to the Semiconductor SOX index last month and reported solid if not spectacular numbers in September as well. The stock is far less exposed to the swings in sector demand with its high industrial presence.
The Stifel price target is $45, and the consensus target is $41.90. Shares closed Monday at $35.14.
NXP Semiconductors
This company is considered a top play for investors looking for a chip stock with Internet of Things exposure. The NXP Semiconductors N.V. (NASDAQ: NXPI) merger with Freescale Semiconductor was widely applauded on Wall Street, and many analyst believe the merger can transform the company into a powerhouse. The merger made NXP the fourth largest semiconductor company in the industry. It is also important to note that the combined company will be the number one supplier in auto semiconductors, the number one supplier in global microcontrollers and a dominant supplier in mobile payments.
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NXP is getting its chips into high-growth areas such as contactless mobile payments, the Internet of Things, mobile-phone charging, increased cellular data consumption and LED lighting. The two business segments that cover these products grew 39% and 29% year over year, very impressive numbers. With a diversified product base, the stock remains a solid buy, albeit a touch pricey compared to others.
The Stifel price target is set at $125, and the consensus target is $125.62. The stock closed Monday at $89.01.
Power Integrations
This company posted solid second-quarter numbers and may be poised to deliver the same for third quarter. Power Integrations Inc. (NASDAQ: POWI) is a leading innovator in semiconductor technologies for high-voltage power-conversion. The company’s products are key building blocks in the clean-power ecosystem, enabling the generation of renewable energy as well as the efficient transmission and consumption of power in applications ranging from milliwatts to megawatts.
As a leader in high-voltage integrated circuits for energy-efficient power conversion, the company continues to partner with industry leaders and present products that are compatible with industry protocols.
Shareholders are paid a 1.08% dividend. The Stifel price is $56, and the consensus target is $53.20. Shares closed most recently at $43.84.
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Stifel has wisely focused on valuations, and all four of these companies are within a very reasonable level. They also have solid industrial demand that helps them to navigate rocky tech and chip sector water a little easier.
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