Augmented Reality (AR) refers to those techniques and methods that allow overlaying of real-world objects and surrounding with three-dimensional virtual objects with the use of an AR device. Unlike virtual reality (VR), AR aims to change perception by adding images, sound, and other details rather than recreating and replacing an entire real-life environment. Nowadays, AR experiences are applied in gaming, education, training, and other fields.

According to a report by Fortune Business Insights, the growing adoption of 5G technology by various enterprises would create lucrative opportunities for the AR industry. The global AR market is expected to reach $97.76 billion by 2028, exhibiting an excellent CAGR of 48.6%.

Given this backdrop, we think AR stocks Lumentum Holdings Inc. (LITE) and Himax Technologies, Inc. (HIMX) might be solid additions to one’s investment portfolio to cash in on the rapidly expanding AR market.

Lumentum Holdings Inc. (LITE)

LITE is a manufacturer and seller of optical and photonic products in different parts of the world. The company operates through the two broad segments of Optical Communications (OpComms), providing components, modules, and subsystems for transmitting video, audio, and data over high-capacity, fiber optic cables; and Commercial Lasers (Lasers), offering diode-pumped solid-state, fiber, and gas lasers.

On January 5, Hesai Technology, a LiDAR technology for autonomous driving and advanced driver-assistance systems (ADAS) firm and LITE announced their partnership on hybrid solid-state directional LiDAR solutions for ADAS through the planned incorporation of vertical-cavity surface-emitting laser (VCSEL) array light sources that can significantly improve LiDAR cost competitiveness and scalability. This should prove to be beneficial for the company.

On November 4, LITE announced that it entered into a definitive agreement to acquire NeoPhotonics Corporation (NPTN) for $16.00 per share in cash. The acquisition is expected to expand the company’s operative capability to meet the growing need for next-generation optical networking solutions.

For the six months ended January 1, 2022, LITE’s net cash provided by operating activities increased 15.1% year-over-year to $268.40 million. The company’s cash and cash equivalent balance rose 71.8% from the prior-year period to $552 million. Gross profit came in at $439.70 million, up 1% from the same period the prior year.

The consensus EPS estimate of $1.22 for the fiscal quarter ending June 2022 indicates a 6.1% year-over-year increase. Likewise, the consensus revenue estimate for the same period of $408.81 million reflects a rise of 4.3% from the prior-year quarter. Moreover, LITE has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four quarters.

The stock has gained 9.2% over the past year and 21.4% over the past six months to close yesterday’s trading session at $96.88.

LITE’s POWR Ratings reflect this promising aspect. The stock has a Quality grade of A. In the 57-stock Technology – Communication/Networking industry, it is ranked #22. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Click here to see the additional POWR Ratings for LITE (Growth, Value, Momentum, Stability, Sentiment).

Himax Technologies, Inc. (HIMX)

HIMX is a fabless semiconductor company that provides display imaging processing technologies. The company operates through the two broad segments of Driver IC and Non-Driver Products. It is headquartered in Tainan City, Taiwan.

On January 14, HIMX introduced an 8K TV Timing Controller, a solution for the ultra-high resolution 8K gaming TV market. The new product with the progression of display technology for film and gaming is expected to benefit the company.

On December 17, HIMX declared that its second-generation automotive in-cell TDDI (Touch and Display Driver Integration), which entered mass production in the third quarter of 2021, were widely adopted by vehicle manufacturers across major automotive markets for new car models to be released to the public during 2022 to 2024. This reflects upon the company’s growth prospects of its automotive business.

For the fiscal third quarter ended September 30, HIMX’s revenues increased 75.4% year-over-year to $420.94 million. Profit for the period and earnings per ADS, attributable to HIMX, stood at 1,362.2% and 1,287.8% from the prior-year quarter to $117.85 million and $0.68, respectively.

Analysts expect HIMX’s EPS to increase 301% year-over-year to $0.79 for the fourth quarter ended December 2021. Likewise, Street expects revenue for the same period of $450.33 million, reflecting an improvement of 63.3% from the prior-year period. In addition, HIMX has beaten consensus EPS estimates in three out of the trailing four quarters, which is impressive.

HIMX’s shares have gained 16.2% over the past three months and 8.5% over the past five days to close yesterday’s trading session at $11.40.

This promising outlook is reflected in HIMX’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

HIMX has a Value grade of A and a Growth and Momentum grade of B. It is ranked #43 out of the 98 stocks in the Semiconductor & Wireless Chip industry. The industry is rated A.

Click here to see the additional POWR Ratings for Stability, Sentiment, and Quality for HIMX.

LITE shares were trading at $95.03 per share on Friday afternoon, down $1.85 (-1.91%). Year-to-date, LITE has declined -10.15%, versus a -7.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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