Technology investors have been well rewarded over the past five years as the so-called FANG stocks drove not only technology outperformance but index outperformance as well. Like all good things, this may be coming to an end as the FANG stocks (Facebook, Amazon, Netflix and Google) have been under tremendous pressure from politicians in Washington, D.C., with some even calling for the breakup of the mega capitalization giants.
Trade issues and tariffs also have weighed heavily on the semiconductor sector, which dropped a stunning 20% between the end of April and the end of May. While the sector has rebounded some, a big earnings miss recently at a bellwether stock has kept a lid on prices. Toss in the fact that the U.S. Department of Commerce barred five more Chinese firms from buying U.S. parts last Friday
A new Deutsche Bank report remains very cautious on the semiconductors, but the analysts do see some bright spots and noted this:
Overall, it is clear that the semiconductor industry is facing headwinds across almost every end market, as revenue growth to be sub-seasonal, inventories have yet to be worked down, and a bottom has yet to be found across most end markets. Overall, we believe fundamentals in the semiconductor space continue to be challenged across all facets, as corroborated by our recent checks in Asia, elevated inventory levels and ongoing trade tensions with China. As such we remain selective in the semiconductor sector.
While the analysts are selective, five top stocks remain Buy rated, and all are offering some of the best entry points in some time.
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Broadcom
This stock was absolutely hammered after the company recently cut revenue guidance for the year. Broadcom Inc. (NASDAQ: AVGO | AVGO Price Prediction) has an extensive semiconductor product portfolio that addresses applications within the wired infrastructure, wireless communications, enterprise storage and industrial end markets.
Applications for Broadcom’s products in its end markets include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems and displays.
Top Wall Street analysts like the leadership in the mobile, data center and broadband markets, and especially in the radio frequency (RF) arena. Many on Wall Street see a cyclical rebound in industrial and communications demand.
Broadcom investors receive a very solid 3.80% dividend. Deutsche Bank has a $315 price target on the shares, while the Wall Street consensus price target is slightly higher at $316.61. The stock closed Friday’s trading at $273.99 apiece.
Inphi
This small-cap company 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.
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 rollout of next-generation communications infrastructure.
The company announced last year that it is partnering with Innovium to provide customers multiple highly scalable industry-leading 100 G to 400 G data center solutions to meet the explosive bandwidth demand growth.
The Deutsche Bank price target for the stock is $55, and the consensus target was last seen at $49.75. The stock closed at $49.99 a share on Friday.
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Intel
This old school leader in semiconductors continues to work hard to focus more on Internet of Things and data center cloud spending. Intel Corp. (NASDAQ: INTC) designs, manufactures and sells integrated digital technology platforms worldwide.
The company’s platforms are used in various computing applications, comprising notebooks, two-in-one systems, desktops, servers, tablets, smartphones, wireless and wired connectivity products, wearables, retail devices and manufacturing devices, as well as for retail, transportation, industrial, buildings, home use and other market segments.
Intel investors receive a solid 2.67% dividend. Deutsche Bank has set its price target at $60. The posted consensus price objective is $52.77, and the shares closed trading most recently at $47.46 apiece.
Marvell Technology
This is among the favored mid-cap picks at Deutsche Bank. 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.
Top analysts around Wall Street remain very positive on the company’s 2017 purchase of Cavium, and many feel the deal adds significantly to the growth element for the stock. The addition also helps make Marvell solidly positioned in data center, cloud, enterprise, security and 5G.
Shareholders receive a 1.00% dividend. The $27 Deutsche Bank price target is about the same as the posted consensus price objective of $27.14. The stock was last seen trading at $23.97 per share.
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NXP Semiconductors
This is still considered a top play for investors looking for a chip stock with Internet of Things exposure. NXP Semiconductors N.V. (NASDAQ: NXPI) became the fourth largest semiconductor company in the industry after it merged with Freescale in late 2015. It is also important to note that the combined company is the number one supplier in auto semiconductors with a 14% share, as well as the number one supplier in global microcontrollers and a dominant supplier in mobile payments.
NXP continues getting its chips into high-growth areas such as contactless mobile payments, the Internet of Things, mobile phone charging, increased cellular data consumption and LED lighting. Trading at a solid discount to peers, some Wall Street analysts are very positive on the faster earnings growth potential relative to its competition.
The Deutsche Bank price target for the stock is $120. The consensus target is much lower at $114.33, and the shares closed most recently at $98.06.
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These are five top stocks in a sector that has been absolutely pummeled. While trade issues and the slowdown in the overall sector may not be settled any time soon, aggressive growth accounts could start to nibble at these top stocks. Caution is still advised though, as second-quarter earnings reporting is right around the corner.
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