5 Semiconductor Stocks to Buy If Sector Has Big Sell-Off

By Lee Jackson Updated Jan 12, 4:07AM EST · Published Jan 25, 8:35AM EST

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5 Semiconductor Stocks to Buy If Sector Has Big Sell-Off — © Thinkstock

The run in the semiconductor space, and especially in some of the top analog companies, has been staggering over the past two years. Any time there is a huge rally, all you need is one bellwether to come in basically in line, or not have incredible guidance, and the sellers will emerge. That is exactly what happened yesterday when Texas Instruments Inc. (NYSE: TXN) reported results that met expectations but offered up so-so guidance.

Despite the inline results, the analysts at Merrill Lynch remain bullish on the stock and actually raised numbers to account for positive gains from the U.S. tax reform. They also noted that results from Texas Instruments could cause a sector pullback and five top companies rated Buy should be on aggressive accounts shopping lists.

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.

Analog Devices investors are paid a solid 1.87% dividend. The Merrill Lynch price target for the stock is $115. The Wall Street consensus target is $99.04. The stock closed Wednesday at $95.34.

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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.

Cypress shareholders are paid a 2.57% dividend. The Merrill Lynch price objective is $22, and the consensus price target is $18.58. Shares closed Wednesday at $17.13.

Microchip Technology

This company is a huge Internet of Things benefactor. 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 are paid a 1.52% dividend. Merrill Lynch has a $120 price target, and the consensus price objective is $106.94. The stock closed Wednesday at $95.36.

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Maxim Integrated Products

This company supplies some chips to Samsung for the red-hot 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.

Shareholders are paid a 2.56% dividend. The $64 Merrill Lynch price objective compares with the consensus estimate of $54.36. The shares closed on Wednesday at $56.35.

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 integrated circuits (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.

The Merrill Lynch price target is $29. The consensus target is $23.30, and shares closed Wednesday at $24.59.

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Five top companies for investors to keep on their radar, as the ripple from the Texas Instruments numbers could spark some selling. With the auto industry continuing to supply huge growth potential, long-term trends are expected to remain very positive.

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.