These companies are positioned to build on the tepid recovery in chip stocks
It’s been almost a week since Russia invaded Ukraine and the conflict continues to take a toll on U.S. equity markets. Semiconductor companies are among the latest to ban sales to Russia.
The significance of this to investors is that 90% of the U.S. semiconductor grade neon supplies come from Ukraine. Neon is an essential component to make the lasers that make the chips. Furthermore, chip makers source approximately 35% of palladium (used in sensors and memory) from Russia.
However, initial concern about the effects on chipmakers looks to be overblown, for now. But that doesn’t mean chip stocks are out of the woods. The sector has experienced significant volatility due to worldwide supply chain disruptions.
The PHLX Semiconductor Index (SOX) is up nearly 4% since the Russian invasion. But the index remains down 17% in 2022.
One strategy that investors can use is to find stocks that are outperforming a benchmark index. Here are three semiconductor stocks that appear to be well-positioned to weather the current disruptions.
1. Intel
Intel (NASDAQ:INTC) stock is up 9% in the last week and is only down 12% in 2022. The company reported a double beat in their January earnings report. The company followed that up with a bullish Investor Day presentation in February. That’s when the company outlined its plans to gain significant market share in the accelerating computing systems and graphics group (AXG).
This is a relatively new business for the company and one in which faces significant competition from the likes of Advanced Micro Devices (NASDAQ:AMD) and NVIDIA (NASDAQ:NVDA).
The stock got a timely lift from the State of the Union address as it was recognized for its plans to build a new factory in the United States. Analysts give the stock a consensus price target that suggests a 15% upside from the stock’s current price.
2. Qualcomm
Qualcomm (NASDAQ:QCOM) is up nearly 5% (4.7%) in the last week and down 11% for the year it is outperforming the SOX index. And with analysts suggesting the stock has an upside of over 20%, investors could be watching QCOM stock hit an all-time high by year-end. One driver for that growth may be the company’s new Snapdragon chip that allows mobile devices to connect to 5G networks.
Qualcomm delivered earnings in early February and continues to show strong sequential and year-over-year growth for its semiconductor chips.
3. Taiwan Semiconductor Manufacturing Company
The world’s largest chipmaker, Taiwan Semiconductor Manufacturing (NYSE:TSM) is flat since the invasion and is approximating the performance of the SOX index being down 16% for the year.
Part of that performance may be investors mulling over the company’s intention to make an aggressive capex spend this year to maintain their leadership position. It may also concern investors that the company declined to comment "at the moment" about potential disruptions to its supply chain.
However, by several technical measures, TSM is looking oversold and analysts have a consensus price target that suggests an upside of nearly 28% for the stock. And the company is projected to show strong revenue and earnings growth in the next two years.