The rising demand for semiconductor chips from several industries, but primarily from automotive and consumer electronics, has created a massive supply-demand imbalance. The resultant increase in prices has been favorable for the semiconductor industry. In addition, with supply chain disruptions owing to the resurgence of COVID-19 cases, the global chip shortage is expected to continue for a more extended period than anticipated earlier. However, a GlobalData report claims that the industry’s logistics issues would not be as harsh as last year.
Furthermore, major chip makers are ramping up their production with government support to meet the overwhelming chip demand. The increasing need for advanced devices that feature a wide range of innovative technologies, such as artificial intelligence (AI), 5G connectivity, and the internet of things (IoT), should keep the demand for semiconductors chips high in the coming months. According to a trade credit insurer Euler Hermes report, chip sales are set to grow by nearly 10% in 2022.
Therefore, we think fundamentally strong yet reasonably priced chip stocks ASE Technology Holding Co., Ltd. (ASX), Amkor Technology, Inc. (AMKR), Kulicke and Soffa Industries, Inc. (KLIC), and Vishay Intertechnology, Inc. (VSH) could be solid picks now.
ASE Technology Holding Co., Ltd. (ASX)
Headquartered in Kaohsiung, Taiwan, ASX provides a range of semiconductor packaging and testing and electronic manufacturing services in the United States, Taiwan, the rest of Asia, Europe, and internationally.
For the third quarter, ended Sept. 30, 2021, ASX’s total net revenues were NT$150.66 billion ($5.44 billion), up 22.3% year-over-year. Its gross profit was NT$30.78 billion ($1.11 billion), up 56.1% year-over-year. Also, its net income increased 111.2% year-over-year to NT$14.18 billion ($511.82 million), and its EPS increased 107.8% year-over-year to NT$3.20.
In terms of forward EV/S, ASX’s 1.14x is 72% lower than the 4.06x industry average. Its 0.81x forward P/S is 79.4% lower than the 3.95x industry average.
ASX’s revenue is expected to be $19.92 billion in fiscal 2021, representing a 22.9% rise. Its EPS is expected to increase 70.5% year-over-year to $0.75 in fiscal 2021. The stock surpassed the EPS estimates in each of the trailing four quarters. And over the past year, it has gained 21% in price to close yesterday’s trading session at $7.84.
ASX’s POWR Ratings reflect its promising outlook. It has an overall B rating, which represents a Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
ASX has an A grade for Value and Momentum and a B grade for Sentiment. It is ranked #43 of 99 stocks in the A-Rated Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for ASX (Growth, Stability, and Quality).
Amkor Technology, Inc. (AMKR)
AMKR provides outsourced semiconductor packaging and test services in the United States, Japan, Europe, the Middle East, Africa, and Asia Pacific. It primarily serves integrated device manufacturers, fabless semiconductor companies, original equipment manufacturers, and contract foundries. AMKR is headquartered in Tempe, Ariz.
On Oct. 25, 2021, Giel Rutten, AMKR’s president & CEO, said, “We remain confident in our strong market position within the fastest growing semiconductor markets of 5G, automotive, high-performance computing and IoT.”
For the third quarter, ended Sept. 30, 2021, AMKR’s net sales increased 24.1% year-over-year to $1.68 billion. The company’s net income came in at $180.85 million, up 96.3% year-over-year, and its EPS was $0.74, up 94.7% year-over-year.
AMKR’s 1.03x forward EV/S is 74.5% lower than the 4.06x industry average Its 0.96x forward P/S is 75.8% lower than the 3.95x industry average.
AMKR’s revenue is expected to grow 20.1% year-over-year to $6.07 billion in its fiscal 2021. Its EPS is estimated to grow 72.9% year-over-year to $2.42 in fiscal 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 42.2% in price to close yesterday’s trading session at $23.70.
AMKR’s POWR ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Value and Momentum and a B grade for Sentiment. AMKR is ranked #23 in the Semiconductor & Wireless Chip industry. Click here to see AMKR’s Growth, Stability, and Quality ratings.
Kulicke and Soffa Industries, Inc. (KLIC)
Based in Singapore, KLIC designs, manufactures, and sells capital equipment and tools to assemble semiconductor devices. It operates in two segments: Capital Equipment and Aftermarket Products and Services.
On Dec. 15, 2021, KLIC and i3 Microsystems, Inc. announced a collaboration to co-develop lithography solutions for the next generation of advanced microelectronics packaging technology. Joeri Durinckx, KLIC’s VP of the EA/APMR and Lithography Business Unit, said, “Through this collaboration, leveraging on i3 Microsystem’s leading technology together with the LITEQ 500A, we are positioned to deliver a revolutionary suite of advanced microelectronics packaging solutions for our customers and the industry.”
KLIC’s net revenue increased 173.1% year-over-year to $485.33 million for its fiscal fourth quarter, ended Oct. 2, 2021. The company’s net income came in at $133.71 million, up 747.1% year-over-year, and its EPS was $2.10, up 740% year-over-year.
KLIC’s 1.86x forward EV/S is 54.1% lower than the 4.06x industry average. Also, its 2.30x forward P/S is 41.7% lower than the 3.95x industry average.
Analysts expect KLIC’s revenue to be $1.58 billion in its fiscal 2022, representing a 3.9% year-over-year rise. The company’s EPS is expected to increase at 20% per annum over the next five years. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 69% in price to close yesterday’s trading session at $58.63.
It is no surprise that KLIC has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Value and Momentum and a B grade for Growth and Quality. KLIC is ranked #27 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for KLIC (Stability and Sentiment).
Note that KLIC is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Vishay Intertechnology, Inc. (VSH)
VSH manufactures and supplies discrete semiconductors and passive electronic components in Asia, Europe, and the Americas. The Malvern, Pa., company has six segments: Metal Oxide Semiconductor Field Effect Transistors (MOSFETs); Diodes; Optoelectronic Components; Resistors; Inductors; and Capacitors.
On Nov. 3, 2021, Dr. Gerald Paul, President & CEO, stated, “We anticipate higher growth rates than in the past for our key end markets and we intend to further invest in the expansion of our manufacturing capacities to be well positioned to take advantage of these growth opportunities. In this context, we announced that we will build a 12” fab for MOSFETs adjacent to our existing fab in Itzehoe, Germany.”
VSH’s net revenues increased 27.1% year-over-year to $813.66 million for its fiscal third quarter, ended Oct. 2, 2021. The company’s net earnings came in at $97.08 million, up 188.4% year-over-year, and its EPS came in at $0.67, up 191.3% year-over-year.
VSH’s 0.85x forward EV/S is 79% lower than the 4.06x industry average. Its 0.96x forward P/S is 75.7% lower than the 3.95x industry average.
Analysts expect VSH’s revenue to come in at $3.22 billion in its fiscal 2021, representing a 28.8% year-over-year rise. The company’s EPS is expected to increase 152.2% year-over-year to $2.32 in its fiscal 2021. Over the past three months, the stock has gained 5.3% in price to close yesterday’s session at $21.22.
VSH has an overall B rating, which equates to a Buy in our POWR Ratings system. It has an A grade for Value and a B grade for Growth and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #21. Also, click here to see the additional POWR Ratings for Momentum, Stability, and Sentiment for VSH.
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ASX shares were trading at $7.86 per share on Tuesday morning, up $0.02 (+0.26%). Year-to-date, ASX has gained 0.64%, versus a -1.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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