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5 Stocks to Buy as Microchip Industry Continues to Thrive

Growing demand for microchips amid supply crunch has been helping companies like Texas Instruments (TXN) and Maxim Integrated Products (MXIM).

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This story originally appeared on Zacks

U.S. auto sales may fall once again in August as vehicles are in short supply due to microchip shortage. The global semiconductor shortage has left carmakers crippled for quite some time now, even compelling many to halt production.

- Zacks

This has been great for the semiconductor industry, which is witnessing a surge in sales and struggling to meet the market demand. Given this scenario, semiconductors are likely to remain in high demand in the coming days.

Automakers Suffering Due to Microchip Shortage

The auto industry has been one of the biggest casualties of the global semiconductor shortage. Sales have been declining over the past few months.

The ongoing microchip supply crunch has compelled many automakers to cut down on production. Analysts believe that this will push sales down again in August. Car and truck sales are likely to be around 1.1 million units this month, down 13.7%,according to a joint forecast from J.D. Power and LMC Automotive.

Most dealers are complaining that despite high demand they can’t sell cars as production has been slashed at many of their units. U.S. dealers are left with a meager 942,000 vehicles in inventory for retail sale against 3 million units in 2019, according to J.D. Power. This further shows the sorry state of the automobile industry.

Semiconductor Industry on a High

The microchip supply shortage was earlier hurting only the automobile industry. But now, smartphone makers and other electronic goods makers are also feeling the heat.

Apple, Inc. AAPL recently warned that the supply crunch of semiconductors would impact the sales of iPhones in the near term. Also, Microsoft Corporation MSFT said that it is struggling to produce Xbox consoles and Surface laptops due to the ongoing microchip shortage.

However, the semiconductor industry is benefiting from the growing demand. The Semiconductor Industry Association (SIA) has projected worldwide sales of semiconductors to reach $426 billion in 2020, reflecting a 3.3% increase from the 2019 sales total of $412.3 billion. Also, the global semiconductor market is projected to grow 6.2% in 2021.

Worldwide sales of semiconductors increased 4.9% in July to $35.2 billion from $33.5 billion a year earlier. Also, sales in July were 2.1 % higher than the June total of $34.5 billion.

Our Choices

Given the rising demand for semiconductors and continuing supply crunch, the semiconductor industry is only likely to benefit in the near term. Below are five chip stocks that investors can gain from in the current scenario.

ON Semiconductor Corporation ON is an original equipment manufacturer of a broad range of discrete and embedded semiconductor components.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 29.5% over the past 30 days. ON Semiconductors holds a Zacks Rank #1.

MACOM Technology Solutions Holdings, Inc. MTSI is a provider of power analog semiconductor solutions to varied markets. The company develops and produces analog radio frequency, microwave and millimeter-wave semiconductor devices, and components for application in optical, wireless and satellite networks.

The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 3.9% over the past 60 days. MACOM Technology Solutions carries a Zacks Rank #2 (Buy).

Maxim Integrated Products, Inc. MXIM is an original equipment manufacturer of semiconductor analog and mixed-signal integrated circuits. The company has a broad product portfolio that includes analog-to-digital converters, amplifiers and comparators, communications devices, data converters, and management components, sensors and wireless products.

Maxim announced on Aug 4 that it will team up with Xailient Inc., a company focused on AI for the edge, to come up with the world’s fastest-power and lowest-power IoT face detection.

The company’s expected earnings growth rate for the current year is 16.4%. The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the past 30 days. Maxim Integrated Products holds a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Semtech Corporation’s SMTC devices are used in a variety of applications including computer, communications, industrial, military-aerospace and automotive. The company also provides a limited amount of wafer foundry services to other electronic component manufacturers.

The company’s expected earnings growth rate for the current year is 39.4%. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 30 days. Semtech has a Zacks Rank #2.

Texas Instruments Incorporated TXN is an original equipment manufacturer of analog, mixed-signal and digital-signal processing integrated circuits. The company recently announced that it will be introducing a new TI-84 graphing calculator supporting the programming language Python.

The company’s expected earnings growth rate for the current year is 31.7%. The Zacks Consensus Estimate for current-year earnings has improved 6.5% over the past 30 days. Texas Instruments carries a Zacks Rank #2.



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Texas Instruments Incorporated (TXN): Free Stock Analysis Report

 

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Microsoft Corporation (MSFT): Free Stock Analysis Report

 

Semtech Corporation (SMTC): Free Stock Analysis Report

 

MACOM Technology Solutions Holdings, Inc. (MTSI): Free Stock Analysis Report

 

ON Semiconductor Corporation (ON): Free Stock Analysis Report

 

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