Technology

5 Semiconductor Stocks to Buy With Limited Exposure to Apple

Lee Jackson

Published: April 23, 2018 8:15 am

Last Updated: January 12, 2020 12:39 am

While Apple Inc. (NASDAQ: AAPL) is a dominant technology player, it also tends to have peaks and valleys in its various business lines, which can expose vendors to inconsistent orders and earnings. Plus, the company announced recently it is planning to use its own chips in Macintosh computers starting in 2020. So for technology investors looking to stay on what has been a very hot semiconductor ride, it may make sense to focus on companies with little or no exposure to Apple.

We screened the Merrill Lynch research database for semiconductor stocks rated Buy that have far less exposure to Apple, and found five companies that look like outstanding buys right now. While they do have an ongoing Apple presence, lower iPhone X sales should not be an issue. Merrill Lynch lowered Apple supplier estimates on Friday.

The industry also was hit on Friday as Taiwan Semiconductor Manufacturing cut forward guidance, a cut many feel is a result of slowing business from Apple. So investors are being offered nice entry points.

Analog Devices

This stock could very well benefit from an increase in information technology (IT) spending. 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.

Last year the company 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 earlier this year, is a huge positive. In addition, many on Wall Street expect that corporate management ultimately will exceed its $150 million of targeted synergies.

Analog Devices investors are paid a solid 2.14% dividend. The Merrill Lynch price target for the stock is $110. The Wall Street consensus price target was last seen at $103.14. The stock closed Friday’s trading at $89.76 per share.

Cypress Semiconductor

This stock traded is offering a fantastic entry point for investors looking to add shares. 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 ICs, USB controllers, connectivity chips (Bluetooth, Wi-Fi, Zigbee) and memory chips. The company has limited exposure to Apple as the automotive market is driving sales growth.

Cypress shareholders are paid a 2.66% dividend. Merrill Lynch has a price objective of $22, which compares with a $20.15 consensus price target. The shares closed at $16.20 apiece on Friday.

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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 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.

While the company only posted inline fourth-quarter numbers, it did offer strong guidance on auto, industrial, data center strength and above seasonal consumer (Samsung, Nintendo). That could prove to be a big plus when it is expected report first-quarter results on April 26.

The Merrill Lynch team has favored Maxim for some time as the company continues to generate significant cash and targets 80% payout ratio. The company’s dividend yield is near its five-year average, and the company has grown its dividend in each of the past six years. The favorable view is based on expectations of continued strong growth in automotive with solid double-digit year-over-year growth and continued strength in its industrial segment.

Shareholders of Maxim are paid a 3.09% dividend. The $68 Merrill Lynch price objective is above the posted consensus target of $61.18. The shares closed most recently at $54.40 apiece.

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.

The company recently received a receipt of antitrust clearance in the United States for the proposed acquisition of Microsemi. The company now expects to complete the acquisition of the company in June of this year.

Microchip investors are paid a 1.71% dividend. Merrill Lynch has set its price target at $110. The consensus price objective was last seen at $111.56, and the stock ended last week at $85.68 a share.

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.

The Merrill Lynch price target is $29. The posted consensus target is $23.30, and the shares were last seen trading at $23.63 apiece.

These are five top semiconductor companies for investors to keep on their radar, as the ripple from the potential trade tariffs and Apple iPhone X weakness continue to dog the industry. With the auto industry continuing to supply huge growth potential, long-term trends are expected to remain very positive.