Analyst Says Buy These 3 Top Chip Stocks During Tech Wreck

By Lee Jackson Updated Jan 13, 1:27PM EST · Published Feb 9, 9:50AM EST

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Analyst Says Buy These 3 Top Chip Stocks During Tech Wreck — © Thinkstock

Market corrections and sell-offs are always the same. What started as a trickle can turn into a torrent fast, and once the margin calls come a knocking, things can get real ugly. We have seen just that, as investors sell everything with any tinge of risk and pour the money into very low-yielding U.S. Treasury securities. For those with some dry powder, this sell-off can turn into a goldmine, especially with some top semiconductor stocks being put on sale.

In a recent research note, SunTrust Robinson Humphrey, turned positive on the chip space, as many of the overall metrics the analysts look at are supportive of a positive bias. While the note said that the consumer sentiment momentum is less than stellar, the group trades at a 6% discount to the S&P versus a five-year premium of 3%.

Here are the three stocks that are rated Buy at SunTrust featured in the research report.

NXP Semiconductors

This is considered a top play for investors looking for a chip stock with Internet of Things exposure. NXP Semiconductors N.V. (NASDAQ: NXPI) is down a stunning 44% from highs printed in June of 2015 but is the top pick at SunTrust.

The merger with Freescale Semiconductor was widely applauded on Wall Street, and many analysts believe it is transforming the company into a powerhouse. NXP became the fourth largest semiconductor company in the industry, and it is the number one supplier in auto semiconductors, number one in global microcontrollers (MCU) 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, mobile-phone charging, increased cellular data consumption and LED lighting. With it trading at a massive 40% discount to peers, the SunTrust team is very positive on the faster earnings growth potential relative to the competition.

The SunTrust price target for the stock is $98, and the Thomson/First Call consensus target is $104.75. The stock closed Monday at $64, down a mind-numbing 9.5% on the day.

Avago

The blockbuster buyout of chip giant Broadcom made big headlines last year, and shares are down a stunning 16% since the end of last year. Avago Technologies Ltd. (NASDAQ: AVGO) was originally a part of Hewlett-Packard and gets a huge chunk of its business from Apple and Samsung.

Avago is a big provider in the cloud/hyperscale data center and networking sector. In fact, it recently announced it will demonstrate its latest optical transceiver technologies for next generation data center and enterprise storage applications. As data center networks transition to 100G speeds to support higher bandwidth demands, technical challenges emerge across various levels of the network from storage endpoints to servers to top-of-rack and core switches.

The company produces radio frequency (RF) front-end for LTE-enabled Apple products. Wall Street estimates that the company does 15% of its total business with Apple. Estimates are that Avago has between a 13% and 17% revenue exposure to Apple in the wireless communications segment. Customer diversity and content for Samsung could be more than enough to offset slower Apple business.

SunTrust likes the leadership in the mobile, data center and broadband markets, and especially in the RF arena. Many on Wall Street see a cyclical rebound in industrial and communications demand. Some do caution that the ongoing integration and financial risk of the Broadcom acquisition could weigh on the stock.

Avago investors receive a 1.44% dividend. SunTrust has a $180 price target. The consensus target is $171.46. Shares closed on Monday at $121.86, down over 5%.

Microsemi

This company 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; power-over-Ethernet integrated circuits and midspans.

Microsemi was added to the Semiconductor (SOX) index last year and delivered first-quarter fiscal 2016 adjusted earnings that matched Wall Street consensus. Revenues came ahead of the consensus estimate, driven by strong growth across all the end markets. The company also reported the book-to-bill ratio was greater than one, which indicates revenue growth. SunTrust sees potential upside in the military and aerospace sectors.

The $49 SunTrust price target is higher than the consensus of $43.92. Shares closed Monday at $30.80.
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The SunTrust analysts are right to focus on the companies that aren’t as tied to PC sales, which continue to slump. After the recent massive selling, all these stocks are offering investors outstanding entry points for those looking to buy now. However, they are suitable only for aggressive accounts, and they are vulnerable to continued selling.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.