If any industry is prone to cyclicality it is the semiconductors, and that trend has been in place for going on 30 years. While the long-term outlook remains reasonably bright, the near term may be challenging, as it appears that first-quarter billings may come in below the seasonal averages. If that is indeed the case, it makes sense to look for companies that have tailwinds from specific growth areas or are, plain and simple, cheap on a valuation basis.
A new Stifel research report notes the lower than average February analog industry billings, which came in at $4.02 billion, down almost 12% month over month, and it seems the first quarter is tracking to down 8.8% quarter over quarter. Despite lowering their numbers for the first quarter and 2019, the analysts do stay positive on stocks in the sector.
Here we cover the stocks that have 5G and optical exposure, and three stocks in those categories remain Buy rated.
Analog Devices
This stock could very well continue to benefit from an increase in information technology and upcoming 5G spending. Analog Devices Inc. (NASDAQ: ADI | ADI Price Prediction) 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.
In 2017, 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.
Analog Devices investors receive a 2% dividend. The Stifel price target for the shares is $118. The Wall Street consensus price target is lower at $114.53, and the stock closed Tuesday at $108.11.
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Inphi
This small-cap company is a strong contender in the data center arena and is on the Stifel select list. Inphi Corp. (NYSE: IPHI) provides high-speed analog and mixed-signal semiconductor solutions for the communications, data center and computing markets worldwide.
The company’s 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 roll-out of next-generation communications infrastructure.
The company announced last year that it is partnering with Innovium to provide customers multiple highly scalable industry-leading 100G to 400G data center solutions to meet their explosive bandwidth demand growth.
Stifel has a $50 price target, and the consensus target is $42.72. The stock closed Tuesday at $44.80.
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MaxLinear
This is another small-cap player that could provide big upside for investors. MaxLinear Inc. (NYSE: MXL) is a global provider of integrated, radio frequency and mixed-signal integrated circuits and systems on chips. The company is a pioneer in multimedia over coax alliance (MoCA) technology, and its products serve broadband communications and infrastructure industries, including cable TV, satellite TV, data center, metro and long-haul optical transport network applications.
The stock is at a discount to peers, and it is another company that could be a very viable takeover candidate. MaxLinears continues its partnership with Celeno Communications, a leading provider of high-performance Wi-Fi silicon and software solutions, and is jointly referencing designs that combine the best in MoCA and Wi-Fi home network technologies to enable whole-home gigabit Wi-Fi.
The $26 Stifel price target compares with a $22.83 consensus estimate. The stock closed most recently at $25.97.
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Given the low expectations for the semiconductors, and with earnings right around the corner, it may make sense to buy smaller opening positions here and see how the results come in. 5G and data center optical plays are still the way to be positioned, and these top stocks are among the best ways to be involved.
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