Despite Huge Chip Plunge, Deutsche Bank Bullish on 4 Stocks

By Lee Jackson Published Mar 27, 9:05AM EDT

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During the massive selling this week, the Philadelphia Semiconductor Index, or the SOX as it is called, fell 4.6%, the largest one day drop since October 10 of last year. While the drop was due to a mixture of bad U.S. macro data and an industry slowdown arising from the strength of the U.S. dollar, a new report from Deutsche Bank speculates that the industry slowdown is not entirely due to the much reported weakness in personal computer sales.

The Deutsche Bank team points out that despite the big sell-off, the SOX continues to outperform the broader S&P 500. They also say selectivity is the key for tech investors wanting to take advantage of the current sell-off and stay long the sector. The analysts stocks rated Buy are primarily in their words, “Co-specific‚ self-help stories that possess the ability to unlock equity value without meaningful macro/cyclical tailwinds.” That is, they have a broad client base and multiple silos for product sales.

The four stocks rated Buy at Deutsche Bank are: Broadcom Corp. (NASDAQ: BRCM), Intel Corp. (NASDAQ: INTC), NXP Semiconductors N.V. (NASDAQ: NXPI) and On Semiconductor Corp. (NASDAQ: ONNN).

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Broadcom

The new Samsung Galaxy S6 could bring even more earnings growth for this top supplier to both Samsung and Apple. Broadcom supplies touch-screen controller chips for the iPhone 6. The S6 will be using the company’s second generation 2X2 5G Wi-Fi/Bluetooth combo, and the new GPS/Sensor hub chipset. The analysts feel that because Samsung is going to use its own applications processor, the company is poised to gain share versus last year, so overall a huge win for the tech giant.

Broadcom shareholders are paid a 1.35% dividend. The Deutsche Bank price target is $50, and the Thomson/First Call consensus price target is $48.06. The stock closed on Thursday at $42.14 a share.

Intel

Wall Street has been taking this stock to the woodshed throughout almost the entire first quarter. The iconic chip giant had a stellar 2014 on the tailwind from continued PC and notebook sales. The stock has underperformed the S&P 500 by a massive 14% year to date, and recently the company dramatically lowered estimates for the first quarter, an event that wasn’t altogether unexpected.

Wall Street analysts have pointed out that so-called earnings confessions are not that unusual in the chip world, and history suggests buying the confession pays in semiconductors. Many are of the opinion that the recent earnings warning announcement is a stellar opportunity for investors to buy a quality stock like Intel.

Intel investors are paid an outstanding 3.21% dividend. Deutsche Bank has its price target set at $38. The consensus target is much lower at $34.70. Shares closed trading on Thursday at $30.08.

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NXP Semiconductors

The recent merger announcement of NXP and Freescale Semiconductor was widely applauded on Wall Street, and many analysts, including the Deutsche Bank team, believe the merger can transform the company into a powerhouse, making it the fourth largest semiconductor company in the industry.

It is also important to note that the combined company would be the number one supplier in auto semiconductors, number one supplier in global microcontrollers, a dominant supplier in mobile payments, and a leading Internet of Things supplier.

The Deutsche bank price target is $115, and the consensus target is set at $107.86. Shares closed Thursday at $97.50 apiece.

On Semiconductor

On Semiconductor purchased Truesense Imaging last year, a provider of high-performance image sensor devices addressing a wide range of industrial end markets, including machine vision, surveillance, traffic monitoring, medical and scientific imaging, and photography. The acquisition of Truesense strongly complements ON Semiconductor’s image-sensor business by vastly expanding its technology portfolio and adding more than 200 new customers. A larger chip company may find the company’s product line a solid fit.

Deutsche Bank has a $16 price objective, and the consensus target for this Wall Street favorite is lower at $14.18. Shares ended most recently at $11.63.

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Again they key for investors is selectivity. The Deutsche Bank team has picked four companies that can provide investors with solid upside potential, especially after a rather significant sell-off.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.