Technology

10 Top Semiconductor Stock Picks From Analysts for 2018

Lee Jackson

Published: December 30, 2017 9:15 am

Last Updated: January 12, 2020 4:59 am

For those who have been in the semiconductor arena over the past two years, it has been an outstanding ride. Just how outstanding of a run you ask? In 2017 alone, the PHLX Semiconductor Sector Index (SOX) index is up a stunning 40%, and that is an aggregate figure. Some of the top companies are up even more than that on an individual basis. The question for investors is a timeless one: Buy, sell or hold?

24/7 Wall St. reviews dozens of daily analyst research reports, and this turns into hundreds of reports each week. In the second half of December, there have been many Wall Street strategists making big bold predictions for stocks in the year ahead. That is after the Dow Jones Industrial Average is up about 25% and the S&P 500 is up about 20% so far in 2017. With the semiconductors up even more, it may be a bold move to continue to stay in the mix.

Earlier in December, Merrill Lynch and its outstanding semiconductor analyst Vivek Arya made the case that when the recent big sell-off in the sector came, it was market driven, and not based on sector fundamentals. They also noted that large sell-offs in the SOX index are not uncommon, but the stocks tend to rebound quickly, which is exactly what happened.

Stifel was another firm that we cover that felt that rather than an imminent cyclical downturn in the industry that forced the big early December selling, overall rotation out may have been the main factor in the decline. With industry fundamentals still looking positive, especially in the industrial and automotive sectors, the firm thinks investors should buy some of the top companies for solid 2018 gains.

In a recent research report from Jefferies, the firm’s outstanding semiconductor analyst Mark Lipacis noted that the continued demand from Internet of Things devices is huge for the analog chip companies. The data those devices generate get processed with new artificial intelligence technology, which is leading to both higher quality and more demand for those devices. It is the perfect storm for leading stocks. The Jefferies report noted this:

Earnings forecasts for analog companies over the next 12 months are at all-time-highs (18% above previous peak forecasts), gross and operating margins are also at all-time-highs and while tight capacity and stretching lead times have led to better pricing, many investors are becoming more concerned that inventories are building in the supply chain and we’re at the peak of the cycle. Mark disagrees, believing that consolidation is the real culprit which could actually drive profitability higher.

All these top analysts remain bullish on the sector, and here we highlight 10 companies that are all rated Buy and could have solid potential going forward in 2018.

AMD

After years of frustrating performance, Advanced Micro Devices Inc. (NYSE: AMD) appears to have turned the corner and is a hot commodity on Wall Street. It is one of the largest suppliers of PC microprocessors and graphics processors worldwide to computing original equipment manufacturers. The company’s main product lines include desktop, notebook and graphics processors, and embedded/semi-custom chips.

This year the company released its first major offering in five years, the Ryzen chipset, which many feel is uniquely positioned to compete with the big players like Intel and NVIDIA in the $50 billion total addressable market for personal computers, gaming, artificial intelligence and servers.

The Merrill Lynch price target is $18, and the Wall Street consensus target is $14.47. The shares closed Friday at $10.28.

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 (ICs) 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.

Analog Devices investors receive a 2.03% dividend. The Jefferies price target is $105. The consensus target is $98.04, and shares closed Friday at $89.03.

Cypress Semiconductor

This stock traded in a tight range from March until last month, but it looks to be breaking out. Cypress Semiconductor Corp. (NASDAQ: CY) manufactures and sells embedded system solutions for the automotive, industrial, home automation and appliances, consumer electronics and medical markets. Its product portfolio includes programmable-systems-on-chip (PSoC), general purpose microcontrollers, analog integrated circuits, USB controllers, connectivity chips (Bluetooth, Wi-Fi, Zigbee) and memory chips.

Shareholders receive a 2.89% dividend. Merrill Lynch has a $21 price objective, while the consensus price target is $18.46. Shares closed Friday at $15.24.

Inphi

Its shares were down at one point almost 30% from highs printed back in February, but this is a strong contender in the data center arena. Inphi Corp. (NYSE: IPHI) 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 to minimize latency in computing environments and enable the rollout of next-generation communications infrastructure.

The $52 Stifel price target is well above the consensus estimate of $45.13. The stock closed Friday at $36.60.

Marvell Technology

This company made a bold $6 billion bid to buy Cavium this year. Marvell Technology Group Ltd. (NASDAQ: MRVL) is a fabless supplier of mixed signal and analog semiconductor products to a number of storage, computing and communication applications, including hard disk drives, personal computers, servers, Ethernet switches, printers and connectivity markets.

The Merrill Lynch team is very positive on the company’s purchase of Cavium, and they feel the deal adds significantly to the growth element for the stock. The addition helps to make Marvell solidly positioned in data center, cloud, enterprise, security and 5G.

The $28 Merrill Lynch price objective is a little higher than the $27.30 consensus target. Shares were last seen trading at $21.47.

Maxim Integrated Products

This company supplies some chips to Samsung for the Galaxy line. Maxim Integrated Products Inc. (NASDAQ: MXIM) designs, develops, manufactures and markets various linear and mixed-signal ICs 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.

Jefferies has set its price objective at $58. The consensus target is $53.91, and shares closed on Friday at $52.28.

Microchip Technology

This is another huge Internet of Things benefactor, and it is only owned by 6% of active managers, well below the 2011 peak of 12%. Microchip Technology Inc. (NASDAQ: MCHP) is a leading provider of microcontroller, mixed-signal, analog and flash-IP solutions, providing low-risk product development, lower total system cost and faster time to market for thousands of diverse customer applications worldwide.

Microchip investors receive a 1.65% dividend. The Jefferies price target of $106 is right in line with the $106.35 consensus price objective. Shares ended the week at $87.88 apiece.

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 ICs, power management products; timing and synchronization devices and precise time solutions, setting the world’s standard for time; voice processing devices; RF solutions; security technologies and scalable anti-tamper products; Ethernet solutions; Power-over-Ethernet ICs and midspans.

Stifel has a price target of $65, while the consensus estimate is $62.73. Shares closed Friday at $51.65.

ON Semiconductor

Aggressive accounts may want to look at this smaller cap play. ON Semiconductor Corp. (NASDAQ: ON) is a vendor of analog power management, analog signal conditioning, standard logic ICs and discrete chips into the automotive, communications, computing, consumer, industrial and medical applications. The company is in the midst of a transformation from a seller of commodity discrete chips into higher value added analog ICs, both through organic growth and acquisitions.

The analysts view ON as an underappreciated way for investors to benefit from the emergence of advanced driver assistance systems and eventually autonomous driving. While the company is inherently levered (operationally and financially) and therefore subject to investor fears of cyclical volatility, many continue to see structural upside for the shares.

Merrill Lynch has a $25 price target. The consensus target is $22.86, and shares traded on Friday’s close at $20.94.

Texas Instruments

This old-school chip tech company was a top pick for the fourth quarter at Merrill Lynch. Texas Instruments Inc. (NASDAQ: TXN) is a broad-based supplier of semiconductor components, ranging from digital signal processors to high-performance analog components to digital light-processing technology and calculators. Some 65% of Texas Instruments sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets.

The company increased its quarterly dividend earlier this year by 32%. The increase reflects its continued strength in free cash flow generation and its commitment to return excess cash to shareholders.

Shareholders are paid a 2.37% dividend. The $115 Merrill Lynch price objective compares with the consensus price target of $100.48. The stock closed at $104.44 on Friday.

Needless to say, many of these companies have had big runs in 2017 and some are priced for perfection. With that caveat in mind, there are numerous positives for the industry and a solid tailwind behind the sector for 2018. It may make sense to buy partial positions now and see how the fourth-quarter numbers look, and importantly how guidance for the first half 2018 comes in.

Also check out other top technology and biotech stocks that analysts recommend for 2018.