Playing the Semiconductor Shortage with 5 Buy-Ranked Stocks

The semiconductor shortage seems to be dragging on forever, and if we listen to experts, it’s going to continue for a while.

Click to get this free report, Zacks Investment Research

– Zacks

That’s because semiconductor fabrication plants (fabs) take 2-3 years to build, and then they have to be qualified and equipped before mass production can begin. Based on what we are hearing from market watchers, analysts and company management, the consumer/computing side is likely to come out of this sooner than the rest, especially the highly competitive, larger players like Apple and Samsung. In fact, they have been ordering above consumption for some time now so they don’t miss a design cycle and production schedules aren’t disturbed.

The capacity crunch is most pronounced in the auto market. Stockpiling really makes a bad situation worse because capacity earmarked for auto was already retooled and repurposed for consumer/computing when automakers cancelled orders back in 2020 in anticipation of protracted weakness in demand. As we all know, that didn’t play out according to expectations, with demand picking up strongly by the end of the year and continuing thereafter.

And for the most part, this capacity is typically in older fabs using older 40nm processes and smaller 200mm wafer sizes. Chip production technology has gone ahead however and today, this kind of production line doesn’t yield a good return on investment. So, chipmakers aren’t exactly racing to build these things.

This would seem to indicate that freeing up older capacity would be the solution to all these problems. But that’s easier said than done because the production lines are shared with less sexy but equally important components like analog and power management chips, display drivers, microcontrollers, sensors and so on, that go into a multitude of things.

When demand follows some logical pattern, chipmakers are able to make adjustments between components to meet it. But when we have some companies stockpiling some components, others grabbing what they can get and every producer using semiconductors asking for more, there’s a likely some inventory imbalance building up.

And this could be terrible for the semiconductor supply chain. Because production may have to be stalled on something like a washing machine if there is supply of sensors but not of microcontrollers (for example) since the washing machine uses both components.

It’s hard to tell exactly what is going on. But some time next year, we could have a situation where there is excess inventory of some components, which will free up capacity for others.

In the meantime, Biden has licensed American suppliers to sell equipment to Huawei, Semiconductor Manufacturing and other Chinese companies that remain blacklisted, so more capacity becomes available. While the tightness in auto chip supply has eased somewhat, it’s very likely that things won’t normalize until the end of 2022, or even in 2023.

As far as overall chip demand is concerned, a slowdown is not expected for a couple more years at least because of the increasingly connected world we live in today that includes more cloud usage, 5G, more IoT, more EVs, more digital entertainment, you name it. All the capacity that’s being built up today could ultimately lead to overcapacity in 2023 or 2024.

But that’s a typical situation for the semiconductor industry that goes through these cycles of tight supplies and strong pricing followed by capacity builds that again lead to extra capacity and stabilizing prices, and then a repetition of these things. Or the cycle could stretch out because of new developments in the digitization of the world.

Given this extremely optimistic outlook, investing in semiconductor stocks seems to be a no-brainer. But we should play with caution because it’s rarely a good idea to pay more. And it’s also important to recognize that the stocks are driven by innovation, so it wouldn’t do to go for a company that has fallen behind on that count. Conversely, it may make sense to pay a bit more for a stock that’s highly innovative.

Consideirng the above, the following stocks belonging to the Zacks classified Electronics – Semiconductors industry (top 17% of Zacks-ranked industries) are worth considering today-

Nova Ltd. NVMI

Israel-based Nova offers metrology solutions combining hardware and cutting-edge software for advanced process control in the lithography, etch, chemical mechanical planarization and deposition stages of semiconductor manufacturing. Its products are used in a number of markets including Israel, Taiwan, the U.S., China and Korea.

The Zacks Rank #1 stock has a B for Value and A for Growth.

The lone analyst offering estimates for this stock expects revenue growth of 53.3% in 2021 and 15.0% in 2022. Earnings growth is expected to be 85.0% and 13.3% in the two years, respectively. Nova’s earnings surprises have been at progressively wider margins in the last four quarters, so either the analyst is too conservative or the company is going from strength to strength.

Nova’s earnings estimates for 2021 and 2022 are up 34 cents (9.8%) and 52 cents (13.7%), respectively in the last 30 days.

Nova shares are up 82.1% over the past year. However, at 30.1X earnings, they are currently trading below their median level of 34.28X over the past year. The S&P 500 trades at 21.81X.

SMART Global Holdings, Inc. SGH

SMART Global Holdings is a designer, manufacturer and supplier of electronic subsystems to OEMs in the computer, industrial, networking, telecommunications, aerospace and defense markets. The company operates primarily in the U.S., Europe, Asia and Latin America.

The Zacks Rank #1 stock has a B for Value and A for Growth.

In the year ending in Aug 2022, SMART Global is currently expected to see revenue and earnings growth of 21.2% and 22.8%, respectively. Estimates for the year are growing rapidly. In the last 30 days, they are up 21 cents (3.4%) on average. In the last 90 days, they are up 65 cents (11.3%).

What’s more, SMART Global shares are up 51.5% over the past year but continue to trade at a mere 8.86X earnings, below its own median level of 12.74X and the S&P 500. So at these levels there is much more upside in the shares.

United Microelectronics UMC

United Microelectronics is a provider of foundry services for high performance semiconductor applications in Taiwan, Singapore, China, Hong Kong, Japan, the U.S., Europe and internationally. In addition to wafer fabrication, it offers mask tooling, IP resources, free-of-charge design libraries, and full front-end and backend support.

The Zacks Rank #2 (Buy) stock has an A for both Value and Growth.

United Microelectronics is expected to grow its revenues by 11.4% in 2022, compared to 28.9% expected growth this year. Its expected earnings growth of 23.5% in 2022 is also encouraging, coming off the 92.9% estimated growth this year.

The Zacks Consensus Estimate for United Microelectronics’ earnings is up from 89 cents to a dollar in the last 60 days, which is an increase of 12.4%.

United Microelectronics shares are up 37.9% over the past year. But they trade at 11.82X earnings, which is about half the S&P 500 and below its median level of 14.48X over the past year.

Silicon Motion Technology SIMO

Silicon Motion Technology Corporation is a leading developer of microcontroller ICs for NAND flash storage devices.

The Zacks Rank #2 stock has a Value Score B and Growth Score A.

Silicon Motion is expected to grow its revenue 15.4% in 2022, on top of the 77.6% expected growth this year. Its 2022 earnings are expected to grow 17.2%, on top of the 86.7% growth expected this year.

Silicon Motion’s estimates are also on the rise. They are up 29 cents (4.3%) in the last 30 days.

Silicon Motion shares are up 43.4% year to date but trading at 9.86X earnings, may still be considered cheap (the median multiple over the past year is 13.90X and the S&P currently trades at 21.82X).

Alpha and Omega Semiconductor AOSL

Alpha and Omega Semiconductor designs develops and markets a broad range of power semiconductor ICs targeting high-volume end-market applications, such as notebooks, netbooks, flat panel displays, mobile phone battery packs, set-top boxes, portable media players and power supplies.

The Zacks Rank #1 (Strong Buy) stock has a Value Score B and Growth Score A.

Alpha and Omega’s revenue is currently expected to grow 4.7% in fiscal 2023 ending June. Its earnings are expected to grow 0.74%. In fiscal 2022, the company is expected to grow earnings 39.3% on revenue that’s expected to grow 13.8%.

The estimate revisions trend is also encouraging. In the last 30 days, Alpha and Omega’s earnings estimate for 2022 jumped 67 cents (19.6%) while the 2023 estimate jumped 47 cents (12.9%).

Alpha and Omega shares are up 107.8% over the past year. Still, they trade at 12.02X earnings, below their median value of 14.16X over the past year and the S&P 500.

One-Month Price Movement

Click to get this free report, Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Names “Single Best Pick to Double”

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report


United Microelectronics Corporation (UMC): Free Stock Analysis Report


Silicon Motion Technology Corporation (SIMO): Free Stock Analysis Report


Nova Ltd. (NVMI): Free Stock Analysis Report


Alpha and Omega Semiconductor Limited (AOSL): Free Stock Analysis Report


SMART Global Holdings, Inc. (SGH): Free Stock Analysis Report


To read this article on click here.


Zacks Investment Research

News Related


Pfizer's (PFE), OPKO's BLA for Somatrogon Gets CRL From FDA

Pfizer Inc. PFE, along with partner OPKO Health, Inc. OPK, announced that the FDA has issued a Complete Response Letter (“CRL”) to the biologics license application (“BLA”) for somatrogon for ... Read more »

Caterpillar (CAT) Gears Up For Q4 Earnings: What to Expect?

Caterpillar Inc. CAT is likely to register top- and bottom-line growth when it reports fourth-quarter 2021 results on Jan 28, before the opening bell. The Zacks Consensus Estimate for quarterly ... Read more »

A Deepfake Phone Call Dupes An Employee Into Giving Away $35 Million

“Hi Susan, it’s Gene. Sorry for calling after hours, but I’m travelling. Can you please transfer $35,000 from our business checking account to a new supplier for a deposit on ... Read more »

UK financial watchdog staff edge closer to strike over pay cuts

Photograph: Chris Helgren/Reuters Unite union says cost-cutting would turn Financial Conduct Authority into ‘bargain-basement’ regulator Staff at the UK’s financial watchdog are edging closer to a strike over pay cuts ... Read more »

The S&P 500 is on track for its worst January ever. Here's why stocks are getting hit so hard

Traders work on the floor of the New York Stock Exchange (NYSE) on February 5, 2018 in New York City.Getty Images It's a sea of red in the stock market ... Read more »

Here's how to navigate Medicare if you return to work after retiring

FatCamera | E+ | Getty Images Sometimes, retirement doesn't end up sticking. If the workforce is luring you back after you retired and you're already on Medicare, you may be ... Read more »

With the economy bracing for inflation fighting interest rate hikes, is now the time to invest in banking stocks?

View of Canary Wharf It is almost incomprehensible for the younger generation of investors that there once was a time where banking stocks were considered bastions for solid, safe and ... Read more »

The stock market slide is unlikely to budge the Fed from tightening

The Marriner S. Eccles Federal Reserve building in Washington, D.C., on Friday, Sept. 17, 2021.Stefani Reynolds | Bloomberg | Getty Images The current slide in the stock market may be ... Read more »

How vulnerable is UK energy system as tensions rise between Russia and Ukraine?

Photograph: Stoyan Nenov/Reuters Fears grow that the Kremlin may restrict gas exports to Europe in the face of potential sanctions The deepening tensions between Russia, the world’s biggest gas producer, ... Read more »

Jim Chanos says the notion that the Fed will always bail out the stock market is dangerous

James Chanos and Leon Cooperman at the 2019 Delivering Alpa conference in New York on Sept. 19. 2019.Adam Jeffery | CNBC Short-seller Jim Chanos said the belief that the Federal ... Read more »

Stocks making the biggest moves midday: Netflix, Kohl's, Wynn Resorts, General Motors and more

Mario Tama | Getty Images News | Getty Images Check out the companies making headlines in midday trading. Netflix — Shares of the streaming giant fell more than 9% after ... Read more »

How a Global Pandemic Prepared Business Leaders for Hybrid Work

As the CEO of an application security company with a global presence, the pandemic taught me — and continues to teach me — many things about resilience, leading by example and quickly ... Read more »

2 disruptive stocks to buy right now in the tech market crash

Financial technology concept. Stock market crash. These past couple of weeks have been pretty brutal for tech stock investors as this part of the stock market has seemingly crashed. The ... Read more »

One-third of Americans admit that they financially cheat on a partner

EmirMemedovski | E+ | Getty Images Have you ever done something with your money that your partner or spouse wouldn't approve of, and kept it a secret? If so, you're ... Read more »

More of the Same to Start a New Trading Week

Monday, January 24, 2022Mondays in late January can often bring harsh realities, depending on where in the U.S. you live, but the stock market is bringing the harshness to even ... Read more »

Kohl's Gets Buyout Offers And Its Stock Soars

Shares of Kohl’s Corporation (NYSE:KSS) have surged over 31% on Monday after private equity firm Sycamore and hedge fund Starboard Value LP made the department store giant takeover offers. Both ... Read more »

Ford Unveils The Bronco Raptor, Starting At $70,000

Ford Motor Company (NYSE:F) has announced a new Bronco SUV member, the Raptor, to be released later this year and starting at $70,000. The automotive giant is also aiming at ... Read more »

What's in the Offing for Xerox (XRX) This Earnings Season?

Xerox Holdings Corporation’s XRX will report fourth-quarter 2021 results on Jan 25, before the bell. – Zacks The company has an impressive earnings surprise history. Its earnings surpassed the Zacks ... Read more »

4 Penny Stocks Up Big With The Stock Market Down Today; Time To Buy?

Thanks to continued fear and uncertainty, the stock market is down again today. Whether you’re looking for penny stocks to buy or higher-priced names, it’s clear there’s blood in the ... Read more »

What's in the Cards for TE Connectivity's (TEL) Q1 Earnings?

TE Connectivity Ltd. TEL is scheduled to report first-quarter fiscal 2022 results on Jan 26.For the fiscal first quarter, the company expects net sales to grow 5% and 4% year ... Read more »

Gilead (GILD) Drug Gets FDA Nod for Non-Hospitalized COVID Patients

Gilead Sciences, Inc. GILD recently announced that the FDA has approved the label expansion of antiviral treatment Veklury (remdesivir) for COVID-19. – Zacks The regulatory body has granted expedited approval ... Read more »

Supply Chain Woes to Dent Meritage Homes' (MTH) Q4 Earnings?

Meritage Homes Corporation MTH is slated to report fourth-quarter 2021 results on Jan 26, after market close.In the last reported quarter, the company’s earnings and home closing revenues topped the ... Read more »

3 WallStreetBets Stocks Wall Street Predicts Will Rally 90% to 175%

The meme stock frenzy took the investing world by storm last year. And despite several fundamentally weak stocks discussed on the WallStreetBets forum having skyrocketed in price based solely on ... Read more »

Is Titan Machinery (TITN) a Solid Value Investor Stock?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying ... Read more »

Market Futures Lower Ahead of Opening

Mondays in late January can often bring harsh realities, depending on where in the U.S. you live, but the stock market is bringing the harshness to even the most pleasing ... Read more »

Northwest Bancshares (NWBI) Q4 Earnings Beat Estimates

Northwest Bancshares (NWBI) came out with quarterly earnings of $0.24 per share, beating the Zacks Consensus Estimate of $0.22 per share. This compares to earnings of $0.29 per share a ... Read more »

Peloton Suffers Another Major PR Nightmare as Another TV Show Features a Heart Attack on the Company's Bike

The entertainment world was shook last month during the premier of HBO Max’s Sex and the City reboot And Just Like That when longstanding character Mr. Big (played by Chris ... Read more »

These Amplifiers Upgrade Your Home Wi-Fi

The business world has adapted to a new normal over the past couple of years as businesses have shifted to fully remote or hybrid models. If your company expects you ... Read more »

Terminally ill benefits claimants to be exempt from work search requirements

Terminally ill benefits claimants in Britain will not have to demonstrate that they are taking measures such as looking for work in order to receive support, the Government has said. ... Read more »

5 Healthcare IT Trends Entrepreneurs Should Watch in 2022

The pandemic has catalyzed significant changes in the healthcare industry, particularly on the technology front as patients, payers and providers look for ever-newer ways of delivering, receiving and being reimbursed ... Read more »

Why Implementing IT Service Management Is More Crucial Than Ever

After suffering from the catastrophic pandemic in 2020 and 2021, this is an important year for organizations operating in major industries worldwide. The Covid-19 situation resulted in a sharp drop in the demand ... Read more »

Chaos on international markets as worries build over Russia tensions

A bruising day on global markets pushed the FTSE 100 to its lowest point in a month – though the index avoided some of the malaise of its European peers. ... Read more »

Here's what you need to know about getting free at-home Covid tests with your health insurance

luza studios | E+ | Getty Images Private health insurers are rolling their procedures for people to get their at-home Covid tests at little to no charge. The Biden administration ... Read more »

Bestselling Author James Patterson Shares His Advice for Entrepreneurs: 'Build a Business You Never Want to Retire From'

There’s a certain mystique surrounding the idea of being a writer who publishes bestselling books. You’ve no doubt read a book that pulled you in emotionally, simulated your mind and inspired you ... Read more »

The Netflix stock price is at its lowest in a year. Should I buy this dip?

Picture of a Netflix menu screen After Netflix (NASDAQ: NFLX) released its results last week, its share price plunged. It is now at levels not seen since mid-2020, when it ... Read more »

Tax season is here. Don't expect a refund for unemployment benefits

Getty Images Tax season is officially here. And those who collected unemployment benefits in 2021 may be in for an unwelcome surprise. While a federal tax break on jobless benefits ... Read more »

Altria (MO) Gears Up for Q4 Earnings: Key Factors to Note

Altria Group, Inc. MO is likely to witness a year-over-year rise in the top and the bottom line when it reports fourth-quarter 2021 earnings on Jan 27. The Zacks Consensus ... Read more »

Conglomerates Q4 Earnings Worth a Watch This Week: GE, DHR, MMM

Market sentiments have been shaky of late, with the S&P 500 declining 8.5% in the past month. The NYSE and NASDAQ also fell 3.3% and 15.3%, respectively, in the same ... Read more »

AbbVie's (ABBV) Skyrizi Gets FDA Nod for Psoriatic Arthritis

AbbVie, Inc. ABBV announced that the FDA approved a second indication for its inflammatory drug, Skyrizi (risankizumab), to treat patients with active psoriatic arthritis. – Zacks Please note that Skyrizi ... Read more »

Will W.R. Berkley (WRB) Retain Beat Streak in Q4 Earnings?

W.R. Berkley Corporation WRB is slated to report fourth-quarter 2021 earnings on Jan 27 before market open. The company delivered an earnings surprise in all the three reported quarters of ... Read more »
On you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic