Typically, when investors think of uses for semiconductors, personal computers, laptops, smartphones and items of that nature come to mind. The reality is that automobiles are using ever more chips for a host of different applications that are available in cars now. With everything in cars from Bluetooth to voice applications, from sensors to GPS and more, the use of semiconductors looks poised to continue to rise.
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A new research report from Mark Lipacis, the very solid semiconductor analyst at Jefferies, cites numerous bullish trends that he expects to provide a tailwind for some of the top companies in the industry. He noted this:

We continue to see a favorable backdrop for auto-semi plays, and believe a potential suburban migration could add another secular driver. We continue to see auto-semis as a beneficiary of an inventory restock in the second half of 2020, but we also believe that early signals suggest COVID-19 may translate to a secular shift in commuting and car buying behavior. In addition, we highlight that an incremental uptick in suburban home demand would create a tailwind, as census data shows that suburban homes have 0.2-to-1.5 more cars per home than urban homes.

Jefferies is very bullish on five stocks. All are rated Buy and make sense for aggressive investors looking to have a semiconductor tech weighting. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Maxim Integrated Products

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

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 analyst’s favorable view is based on expectations of continued strong growth in automotive with the potential for double-digit year-over-year growth and continued strength in its industrial segment.

Shareholders receive a 3.1% dividend. The Jefferies price objective for the shares is $65, and the Wall Street consensus target price is $59.24. Maxim Integrated Products stock closed on Tuesday at $61.51 a share.

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 even LED lighting. With shares trading at a solid discount to peers, some Wall Street analysts are very positive on the faster earnings growth potential relative to its competition. Jefferies agrees and recently noted this:

We revisited our prior work on semis, and we continue to expect WFH and Analog/MCU plays in semis will mean revert. While we have already begun to see this start, we highlight Auto-semi plays in particular, as US auto inventories have declined 28% from peak levels in March and forecasts from the group appear to be 6-36% below the longer term trendline in the second quarter to the fourth quarter of 2020. In addition, we point out that COVID-19 may ultimately add additional car demand,

Jefferies has a $127 price target, and the consensus target is $119.23. NXP Semiconductor stock closed most recently at $151.43.

This sector leader made a huge purchase last year that is proving to be a solid tailwind for the company. Nvidia Corp. (NASDAQ: NVDA), a company that rarely has grown through acquisitions, bought Mellanox and paid a whopping $6.9 billion in cash.

In what actually was somewhat of a duel, Nvidia knocked out Intel in its bid to buy the chipmaker, and the deal has helped Nvidia boost its business of making data center chips that help power cloud computing.

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Mellanox’s BlueField intelligent network adapters are another version of data center co-processing acceleration. Top Wall Street analysts see the combination of Nvidia and Mellanox as a definite threat to Intel’s data center CPU dominance of workloads. Together, Nvidia’s computing platform and Mellanox’s interconnects power over 250 of the world’s Top 500 supercomputers and have as customers every major cloud service provider and computer maker.

The stunning $415 Jefferies price target compares with the $388.20 consensus target. Nvidia stock closed at $394.87.

ON Semiconductor

Aggressive investors 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 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.

Jefferies has set a $20 price target. The consensus target is $19.49, and ON Semiconductor stock ended Tuesday at $19.27 a share.

Texas Instruments

This old-school legacy semiconductor tech company offers solid value at current levels and is a great pick for investors who are more conservative. 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 the company’s sales are exposed to the well-diversified, business-to-business industrial, automotive, communications infrastructure and enterprise markets. While business from those sectors, especially automotive, could suffer in the near term, the analyst feels the solid dividend should support the shares.

The company is also a big Apple supplier, so the long-term outlook for this venerable leader makes it a safer bet for accounts with less risk tolerance. Jefferies has remained positive on the shares for years and said this:

We consider Texas Instruments to be the premier IoT play in our “Analog Renaissance” thesis, which argues that analog companies will see higher growth over the next 5 years versrs the previous 5 due to their position as critical component players in the IoT side of the “4th Tectonic Shift in Computing” to an IoT and Parallel Processing model. The company is the analog market share leader, and continues to gain share, which supports our view that it will be the first company in the analog sector to capture 40-50% share and the lion’s share of the profits in the industry.

Investors receive a 2.72% dividend. The Jefferies price target is $136. The consensus target is $121.61, and Texas Instruments stock was last seen trading at $128.60.

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The intriguing part of the Jefferies thesis is the potential migration to the suburbs from urban areas. That, plus all the other positives for these companies in areas like data center and IoT applications, make these great additions to aggressive growth portfolios.

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