Semiconductor stocks are likely to have a smooth ride in 2015 with the growing need for technology-based devices by consumers and enterprises alike.
According to the Semiconductor Industry Association (SIA), worldwide semiconductor industry recorded sales growth of 9.9% in 2014. Also, the report indicated worldwide semiconductor sales growth of 3.4% in 2015, followed by 3.1% growth in 2016. The industry is experiencing growth primarily due to developing end markets and new product offerings, supported by process and yield improvements at semiconductor manufacturers.
Also, expectation of improved U.S. economic growth in the coming quarters is a net positive for this economically strong sector. The stabilization of the PC market, continued strong adoption of tablets and smartphones, automotive electronics and the emergence of the new category of wearable devices have all contributed to stronger demand for the processing and sensing devices that run them. So they are all factors driving the semiconductor industry this year.
The industry drives, enables and indicates the technological progress of an economy. The resultant diversification leads to a large number of players with great specialization that makes it rather hard to pick winners. Therefore, it makes sense to weigh the pros and cons before investing in these stocks.
How to Find the Right Stocks?
Stock diversity in the semiconductor arena could confuse you. An easy way to narrow down choices is to take a look at stocks with a solid Zacks Rank and with substantial gains over the last 52 weeks.
So stocks that have gained substantially in a year’s time or so and have been seeing positive earnings estimate revisions are likely to be interesting purchases.
Our Picks
For investors seeking to benefit by applying this strategy to their portfolio, we have shortlisted three semiconductor stocks that have performed well:
Cirrus Logic (NASDAQ:CRUS)
Cirrus Logic designs and manufactures integrated circuits that employ precision linear and advanced mixed-signal processing technologies. The company's products enable system-level applications in mass storage, audio and precision data conversion.
Currently, the Zacks Consensus Estimate for Cirrus Logic’s fourth-quarter earnings is 34 cents with growth expectation of 6.3% over the year-ago quarter. The company had recorded a positive earnings surprise of 45.9% in the last quarter. The stock has delivered positive earnings surprises in all the last four quarters with an average beat of 43.4%.
Cirrus Logic currently sports a Zacks Rank #1 (Strong Buy) and has generated a strong 52-week return of around 60.1%. The company has a market cap of $1.84 billion and a long-term expected earnings growth rate of 6.8%.
Moreover, over the last 60 days, two estimates for fiscal 2015 were raised, pushing the Zacks Consensus Estimate up by 39 cents to $2.06.
FormFactor (NASDAQ:FORM)
Based in Livermore, CA, FormFactor is an original equipment manufacturer (OEM) of automated wafer probe cards used in the semiconductor integrated circuits (ICs) manufacturing process.
FormFactor carries a Zacks Rank #1 and has generated a strong 52-week return of around 30.3%. The company has a long-term expected earnings growth rate of 12%.
Currently, the Zacks Consensus Estimate for FormFactor’s first-quarter earnings is pegged at 2 cents. We note that the company had posted a loss of 9 cents in the year-ago quarter. The company had also recorded a whopping positive earnings surprise of 200.0% in the last quarter. The stock has also delivered positive earnings surprises in three out of the last four quarters with an average beat of 55.6%.
Moreover, over the last 60 days, one estimate for fiscal 2015 was raised, pushing the Zacks Consensus Estimate up by 6 cents to 22 cents.
Freescale Semiconductor (NYSE:FSL)
Freescale Semiconductor, processes semiconductors and solutions for automotive, networking, industrial and consumer markets worldwide and carries a Zacks Rank #1.
Products offered by the company include networking and multimedia microprocessors, including communication processors, digital signal processors, and multimedia and application processors.
The company has generated a return of 65.9% over the last 52 weeks. The company has a long-term expected earnings growth rate of 15%. It has delivered positive earnings surprises in the last four quarters with an average surprise of 12.6%.
Currently, the Zacks Consensus Estimate for Freescale Semiconductor’s first-quarter earnings is 38 cents with growth expectation of 80.9% over the prior-year quarter. Moreover, over the last 60 days, five estimates for fiscal 2015 moved higher, raising the Zacks Consensus Estimate up by 28 cents to $1.88 per share.
Moving Forward
Although past performances do not guarantee similar results in the ensuing year, we feel optimistic about these stocks given their expected forward growth rates and estimate revision trends. We note that persistent strength denotes solid management execution and this is what we expect will carry these stocks forward.
So what you are waiting for? If you are looking for stocks that are well-equipped to overcome the bumps down the road, take a look at these three stocks.