3 Top Semiconductor Stocks to Buy in July As the digital transformation picks up pace, the demand for semiconductors is increasing because they are a critical component in advanced technologic...

As the digital transformation picks up pace, the demand for semiconductors is increasing because they are a critical component in advanced technological devices. The semiconductor industry is seeing huge demand from the electric vehicles (EV) industry also. This heightened demand is driving up chip prices, which we think should result in solid upside for semiconductor stocks such as ON Semiconductor (ON), Diodes (DIOD), and Vishay (VSH). So, let's pore over these names.

The mainstream adoption of remote working due to its convenience and efficiency, along with the ongoing digital transformation, are increasing the demand for semiconductors. Semiconductors form the backbone of most advanced technological devices. The semiconductor industry is also witnessing increasing demand from the electric vehicles (EV) industry. While supply constraints are impacting the industry, the strong demand environment is allowing companies to raise prices for their chips and generate substantial profits. And, investors' increasing interest in the semiconductor industry is evident in the SPDR S&P Semiconductor ETF's (XSD) 6.7% gains over the past month versus the SPDR S&P 500 Trust ETF's (SPY) 3.2% returns.

Many semiconductor companies are ramping up their production to meet the rising demand for chips. In fact, the industry is benefiting from government and private investments worldwide to expand production capacity. According to The Goldman Sachs Group, Inc. (GS), the chip shortage is expected to decline in the second half of the year.

The industry is expected to continue growing due to increasing demand for chips with the growing adoption of advanced technologies, such as internet of things (IoT), 5G, and artificial intelligence (AI). According to a Fortune Business Insights report, the global semiconductor market is expected to grow at an 8.6% CAGR between 2021 - 2028. Given this backdrop, we think it could be wise to bet on fundamentally strong semiconductor players ON Semiconductor Corporation (ON), Diodes Incorporated (DIOD), and Vishay Intertechnology, Inc. (VSH).

Click here to checkout our Semiconductor Industry Report for 2021

ON Semiconductor Corporation (ON)

ON together with its subsidiaries, manufactures and sells semiconductor components for various electronic devices worldwide. It operates through three segments: Power Solutions Group (PSG), Advanced Solutions Group (ASG), and Intelligent Sensing Group (ISG). The company serves original equipment manufacturers (OEMs), distributors, and electronic manufacturing service providers. ON is based in Phoenix, Ariz.

On May 3, 2021, Hassane El-Khoury, ON's president and CEO said, "The momentum in our strategic automotive and industrial end-markets is accelerating. During the first quarter, we secured key platform design wins for our Silicon Carbide and Silicon based power products, further solidifying our market leadership in vehicle electrification."

ON's revenue increased 15.9% year-over-year to $1.48 billion for its fiscal first quarter ended April 2, 2021. Its adjusted EBITDA grew 54.7% year-over-year to $329 million. Its non-GAAP net income increased 253.5% year-over-year to $151.3 million. And ON's non-GAAP EPS came in at $0.35, up 250% year-over-year.

Analysts expect ON's EPS to come in at $1.90 in its fiscal year 2021, representing a 123.5% year-over-year increase. It surpassed the Street's EPS estimates in each of the trailing four quarters. The company's revenue is expected to increase 22.3% year-over-year to $1.61 billion for the quarter ending September 30, 2021. The stock has surged 94.5% over the past year to close yesterday's trading session at $38.23.

It's no surprise that ON has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Growth, and a B grade for Value. Click here to see ON's ratings for Momentum, Sentiment, Stability, and Quality as well.

ON is ranked #39 of 99 stocks in the B-rated Semiconductor & Wireless Chip industry.

Diodes Incorporated (DIOD)

DIOD designs, manufactures, and supplies application-specific standard products in the discrete, logic, and analog and mixed-signal semiconductor markets worldwide. The Plano, Tex.-based company focuses primarily on low-pin-count semiconductor devices with one or more active and/or passive components and offers discrete semiconductor products.

The company introduced an industry-first 16-bit PI4IOE5V6416Q and 34-bit PI4IOE5V6534Q bidirectional voltage-level translation general-purpose I/O (GPIO) expanders for automotive applications on June 2. DIOD could witness increasing demand for this product because it improves system design and flexibility.

DIOD's net sales increased 47.2% year-over-year to $413.10 million for its fiscal first quarter ended March 31, 2021. Its non-GAAP EBITDA grew 54.3% year-over-year to $81.66 million. Its non-GAAP net income increased 75.4% year-over-year to $42.01 million. DIOD's non-GAAP EPS came in at $0.93, up 102.2% year-over-year.

The company's EPS and revenue are expected to increase 91.9% and 46.8%, respectively, year-over-year to $1.19 and $448.56 million for the quarter ending September 30, 2021. It surpassed the Street's EPS estimates in each of the trailing four quarters. The stock has gained 58.2% over the past year to close yesterday's trading session at $79.45.

DIOD's POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Growth, Value, and Sentiment. Within the Semiconductor & Wireless Chip industry, DIOD is ranked #4.

To see all the additional POWR Ratings for DIOD (Stability, Momentum, and Quality), click here.

Vishay Intertechnology, Inc. (VSH)

VSH is a manufacturer and supplier of discrete semiconductors and passive electronic components. The company operates primarily through six segments—metal oxide semiconductor field effect transistors (MOSFETs), diodes, optoelectronic components, resistors, inductors, and capacitors. VSH is based in Malvern, Pa.

The company introduced a versatile new 30 V n-channel TrenchFET Gen V power MOSFET on May 24 that delivers increased power density and efficiency for both isolated and non-isolated topologies. This further expands VSH's product portfolio.

VSH's net revenue increased 24.8% year-over-year to $764.63 million for its fiscal first quarter ended April 3, 2021. The company's operating income grew 105.2% year-over-year to $97.26 million. Its net earnings came in at $71.64 million, which represents a 161.6% year-over-year increase. Its EPS came in at $0.49, up 157.9% year-over-year.

For its fiscal year 2021, analysts expect VSH's EPS and revenue to increase 133.7% and 27.7%, respectively, year-over-year to $2.15 and $3.19 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock has soared 46.5% over the past year to close yesterday's trading session at $22.15.

VSH's strong fundamentals are reflected in its POWR Ratings. The company has an overall B rating, which equates to Buy in our proprietary ratings system. The stock has an A grade for Value and Growth, and a B grade for Quality.

We have also graded VSH for Stability, Sentiment, and Momentum. Click here to access all VSH's ratings. VSH is ranked #15 in the Semiconductor & Wireless Chip industry.

Click here to checkout our Semiconductor Industry Report for 2021

ON shares were trading at $38.13 per share on Wednesday morning, down $0.10 (-0.26%). Year-to-date, ON has gained 16.50%, versus a 16.76% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock's price is the key approach that he follows while advising investors in his articles.

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