Seemingly for years, the semiconductor silo of the technology sector was outperforming and the top stocks continued to fly higher and higher. Even this year, while the group is the leading technology subsector with a gain of 11%, it has underperformed the S&P 500 by 8% over the past month. After some of the top companies, including in semiconductor testing and memory, presented very good earnings results, almost every one of the top stocks saw selling.
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While most investors are familiar with the “buy the rumor, sell the news” adage, many analysts are getting very constructive on the semiconductors, memory and semiconductor capital equipment hybrids at current trading levels. While supply constraints have weighed heavily, and could be one of the reasons for the selling after solid results, the reality is that probably will not last forever.

We noticed the selling in companies reporting good results, so we screened the BofA Securities technology coverage universe looking for Buy-rated stocks offering great entry points. We found four that aggressive investors should be looking to buy after they posted stellar numbers and were sold off. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

AMD

This top semiconductor company has been on fire and crushed expectations. Advanced Micro Devices Inc. (NYSE: AMD) operates as a semiconductor company worldwide. Its products include x86 microprocessors as an accelerated processing unit, chipsets, discrete and integrated graphics processing units (GPUs), data center and professional GPUs, and development services. They also include server and embedded processors, and semi-custom system-on-chip products, development services and technology for game consoles.

AMD provides x86 microprocessors for personal computers under the AMD Ryzen, AMD Ryzen PRO, Ryzen, Threadripper, AMD A-Series, AMD FX, AMD Athlon, AMD Athlon PRO and AMD Pro A-Series processors brands. It provides microprocessors for notebook and 2-in-1s under the AMD Ryzen, AMD A-Series, AMD Athlon, AMD Ryzen PRO, AMD Athlon PRO and AMD Pro A-Series processors brands, as well as microprocessors for servers under the AMD EPYC and AMD Opteron brands. Its chipsets are sold under the AMD trademark.

The company reported outstanding results, with data center revenue doubling. The BofA Securities analyst said this:

Solid beat and raise with calendar 2021 sales growth now 50% year-over-year (vs. 37% prior); We reiterate our buy rating and raise the price objective with a path to long-term earnings-per-share of $4+. Like: improving supply; product cycles (Milan, Ryzen 5000, consoles, Radeon 6000); 1.3% to 4% of market share gains in first quarter 2021 estimated. Risks: tough PC compares post double-digit growth in 2020/21 estimated; growing competition from Intel (new CEO) and Arm based CPUs.

The BofA Securities raised its price target to $110 from $100. The Wall Street consensus target is $105.41. The final trade Advanced Micro Devices stock for Friday came in at $81.62 a share.

While actually a hybrid semiconductor capital equipment/test leader, this company guided 30% ahead of expectations and saw selling. Teradyne Inc. (NYSE: TER) is a supplier of automation equipment for test and industrial applications.
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The company designs automatic test systems used to test semiconductors, wireless products, data storage and electronic systems in the consumer, wireless, auto, industrial, computing, communications and aerospace/defense markets. Industrial automation products include collaborative robots used by global manufacturing and light industrial customers to improve manufacturing efficiency and reduce costs.

Many analysts on Wall Street point to the company as a somewhat ancillary play to the sector and have often cited the growing robotics silo as more of a reason to own the shares than the fundamentals related to wafer fab equipment. The company also has consistently bought back stock, a huge positive for shareholders.

The analyst said this after the company reported:

Solid beat and raise with sustainable long-term demand; now see sales/EPS compounded annual growth rate of 11%/14% and long-term EPS of $9; Reiterate Buy and raise price objective. Like: Semiconductor test stocks on total addressable market +17% to $5.2billion; Apple likely flat to slightly down in 2021 versus -40%+ expected; solid free-cash-flow/returns. Risks: memory share down in 2021; 10%/40% test growth in 2020 and 2021 well above long term 4-8% creates tough comparisons; supply very tight.

BofA Securities lifted its $150 price target to $155, well above the $137.85 consensus target. Teradyne stock closed at $125.08 on Friday.

Texas Instruments

This old-school semiconductor maker also trounced estimates, but disappointing guidance brought in the sellers. 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. The company is a big Apple supplier, so the long-term outlook for this venerable leader makes it a safer bet for investors with less risk tolerance.

The stock was crushed after the solid first-quarter results, as guidance surprised Wall Street. The pullback in the share price is offering long-term investors the best entry point in some time.
The analysts said after reviewing the Texas Instruments earnings:

Texas Instruments reported a solid first quarter 2021 sales of $4.29 billion, beating guidance by $300 million or 9%. Price objective is raised. Likes: Strength in Industrials, internal fab capacity promotes lead time stability, stable prices bodes well for share gains. Risks: Supply shortages unlikely to be resolved anytime soon, flatlining auto growth in the first quarter, inventories hit 4 year lows.

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Investors receive a 2.25% dividend. The $200 BofA Securities price target rose to $210, while the consensus target is $199.90. Texas Instruments stock retreated almost 3% on Friday to close at $180.51 a share.

Western Digital

While not a pure-play chip stock, this is a leader in the total addressable hard disk drive (HDD) market. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content. It is a long-time innovator in the storage industry.

The company is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.

This is another company that posted stellar results and was sold off. BofA Securities said this last week:

NAND starting to recover can drive significant positive revisions, Hard disk drive and NAND margins grow quarter over quarter the next few quarters. Long-term agreement between Western Digital and cloud companies is a positive for the industry as well as can lead to more disciplined pricing. Reiterate Buy. Price objective is raised on 9x Calendar 2022 EPS of $8.56.

Note that NAND flash memory is a type of non-volatile storage technology that does not require power in order to retain data.

The BofA Securities price target was raised from $67 to $80, which is in line with the $79.98 consensus figure for Western Digital stock. Friday’s closing share price was $70.63.

Again, most on Wall Street feel the supply chain disruptions affecting the industry were the main impetus behind much of the selling. However, most are much more constructive on the group at these lower price levels, especially after posting such stellar earnings reports. For aggressive growth investors, all these top companies are solid ideas now.

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