Technology

Stifel Says Jump on Semiconductor Pullback: 5 Stocks to Buy Now

Lee Jackson

Published: July 13, 2017 8:25 am

Last Updated: January 12, 2020 10:11 am

After absolutely rampaging over the last year, the PHLX Semiconductor Sector Index (SOX) corrected 7% since the highs posted in June. While the index has retraced some of the declines since early June, many of the valuations still look stretched. The good news is that some of the other stocks are looking much better, and top analysts on Wall Street are saying that this current pullback may be an outstanding chance for investors to jump in and grab some of the best companies, especially with earnings on the way.

A new Stifel research report makes the case that rather than an imminent cyclical downturn in the industry that forced the selling, overall rotation out may be the main factor in the decline. With industry fundamentals still looking positive, especially in the industrial and automotive sectors, the analysts think investors should buy some of the top companies now. They pound the table on three and like two others after steep declines in share price.

Analog Devices

This stock spiked recently and has come back into a good buy range. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.

The company recently introduced a highly integrated polyphase analog front end with power quality analysis designed to help extend the health and life of industrial equipment while saving developers significant time and cost over custom solutions. Achieving extremely accurate, high-performance power quality monitoring typically requires customized development, which can be expensive and time-consuming.

The analysts believe that the Linear Technology acquisition, which closed recently, is a big positive. In addition, many on Wall Street expect that corporate management ultimately will exceed its $150 million of targeted synergies. Toss in a very positive recent analysts day, and the signals look strong.

Analog Devices investors receive a 2.24% dividend. The Stifel price target for the stock is $97. The Wall Street consensus target is $95.02. The stock closed Wednesday at $80.37 per share.

Maxim Integrated Products

This company supplies chips to Samsung for the Galaxy line. Maxim Integrated Products Inc. (NASDAQ: MXIM) designs, develops, manufactures and markets various linear and mixed-signal integrated circuits worldwide. The company also provides a range of high-frequency process technologies and capabilities for use in custom designs. It primarily serves automotive, communications and data center, computing, consumer and industrial markets.

This stock has traded down over 10% since early June and could be a great company to own in front of earnings. It has beaten the earnings projections for each of the past six operational quarters, and it is projected to for this quarter as well by some analysts.

Stifel has a $36 price target for the shares, while the consensus target is $35. The stock closed Wednesday at $46.70.

Silicon Laboratories

This top chip company has been hit very hard and is offering the best entry point in some time. Silicon Laboratories Inc. (NASDAQ: SLAB) is an industry leader in the innovation of high-performance, analog-intensive, mixed-signal integrated circuits. Developed by a world-class engineering team with unsurpassed expertise in mixed-signal design, Silicon Labs’ diverse portfolio of patented semiconductor solutions offers customers significant advantages in performance, size and power consumption.

The company recently introduced a new family of high-performance crystal oscillators offering the industry’s lowest jitter frequency-flexible solution. These new crystal oscillators provide best-in-class frequency flexibility and excellent jitter margin for demanding applications including 100G/200G/400G line cards and optical modules, hyperscale data centers, broadband, wireless infrastructure, broadcast video, industrial, test and measurement, and military/aerospace.

Stifel has set its price objective at $82, and the consensus target price is $80.70. The shares closed trading on Wednesday at $69.45.

Inphi and Microsemi

The Stifel analysts also were very positive on two additional companies — Inphi Corp. (NYSE: IPHI) and Microsemi Corp. (NASDAQ: MSCC) — that have seen steep declines in the share prices. They cite very attractive valuations as a reason to buy them now.

Inphi is a strong contender in the data center arena. The company provides high-speed analog and mixed signal semiconductor solutions for the communications, data center and computing markets worldwide. Its end-to-end data transport platform delivers high signal integrity at leading-edge data speeds, addressing performance and bandwidth bottlenecks in networks, from fiber to memory. Inphi has solutions minimize latency in computing environments and enable the roll-out of next-generation communications infrastructure.

Many on Wall Street feel that the battle for dominance in outsourced cloud services between Amazon, Google, Microsoft and others, should continue to drive growth in data center capital expenditures. The analysts feel that Cloud Data Center customers are more likely to embrace Inphi’s exciting 100G products, like the PAM-4 solutions, ColorZ and others.

Inphi shares were down at one point 29% from highs. The Stifel price target is $52, and the posted consensus estimate is $47.30. The stock closed Wednesday at $38.52, up almost 5% on the day.

Microsemi could benefit from continued industrial demand. It 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.

While it hasn’t actually announced a deal, Microsemi is said to still be running a sale process after receiving takeover interest from Skyworks Solutions, according to people familiar with the matter. Microsemi hired Bank of Montreal last year to run a broader auction after Skyworks offered to buy the company, the people said, asking not to be named because the negotiations are private. The process is in the early stages, no deal is imminent and a transaction may not occur.

The $65 Stifel price target compares with the consensus target of $63.09 and the most recent closing share price of $50.21.

While they are not suitable for all accounts, the lower prices in these top companies are attractive. With earnings right around the corner, it may make sense to buy partial positions and see how the results are.