Analysts expect the ongoing semiconductor shortage to last through next year. However, the global semiconductor industry delivered a 24% year-over-year sales growth in October 2021. Also, the possibility of the House’s passage of the $52 billion CHIPS Act by the end of this year and increasing corporate investments to ramp up chip production is likely to ease the situation by the end of 2022. The growing investor optimism in this space is evident in the SPDR S&P Semiconductor ETF’s (XSD) 16.8% gains over the past three months, surpassing the SPDR S&P 500 Trust ETF’s (SPY) 5.1% returns.

Moreover, consistent chipmaking breakthroughs should foster the industry’s long-term growth. The global semiconductor chips market is expected to grow at 7.8% CAGR and reach $553.60 billion by 2026.

Given this backdrop and the ongoing volatility in the market, fundamentally-sound and undervalued chip stocks Micron Technology, Inc. (MU), NXP Semiconductors N.V. (NXPI), ON Semiconductor Corporation (ON), and Kulicke and Soffa Industries, Inc. (KLIC) are likely to witness a rally in the near-term.

Micron Technology, Inc. (MU)

MU designs, manufactures, and sells memory and storage products worldwide. The company operates through computer and networking, mobile, storage, and embedded business units. It sells dynamic random access memory chips (DRAMs), static random access memory chips (SRAMs), flash memory, semiconductor components, and memory modules to various end markets.

On December 1, 2021, MU expanded its business relationship with United Microelectronics Corporation (UMC), which helps MU to secure supply for automotive, mobile, and critical customers into the future and increase collaboration across the semiconductor industry. This expansion will also help MU deliver its industry-leading memory and storage solutions to its customers globally.

MU’s non-GAAP revenue for its fiscal fourth quarter, ended September 2, 2021, increased 36.6% year-over-year to $8.27 billion. The company’s non-GAAP gross profit came in at $3.96 billion, indicating an 87.8% rise from the prior-year period. Its non-GAAP operating income was $3.07 billion, up 136% from its year-ago period. While its non-GAAP net income increased 126% year-over-year to $2.78 billion, its non-GAAP EPS increased 124.1% to $2.42. As of September 2, 2021, the company had $7.83 billion in cash, cash equivalents, and restricted cash.

Analysts expect the stock’s EPS to increase 45% year-over-year to $8.79 in the current year. The consensus revenue estimate of $31.89 billion for the current year represents a 15.1% rise from the prior-year period. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. MU’s EPS is expected to grow at a rate of 22.3% per annum over the next five years.

The stock has gained 17.1% over the past year and 4.2% over the past six months. It closed yesterday’s trading session at $85.66. MU’s 0.46x non-GAAP forward PEG is 71.4% lower than the 1.62x industry average. In terms of forward EV/EBITDA, MU is currently trading at 5.04x, 67.7% lower than the industry average of 15.62x. The stock’s total assets grew at a CAGR of 10.7% over the past three years.

It is no surprise that MU has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has an A grade for Momentum, and a B grade for Growth, Value, and Quality. Click here to see the additional ratings for MU’s Stability and Sentiment.

MU is ranked #9 of 100 stocks in the A-rated Semiconductor & Wireless Chip industry.

NXP Semiconductors N.V. (NXPI)

NXPI is a Netherlands-based company that designs semiconductors and software for mobile communications, consumer electronics, security applications, in-car entertainment, and networking. The company sells its products to automotive, identification, wireless infrastructure, lighting, mobile, and computing applications.

On November 10, 2021, NXPI collaborated with the Ford Motor Company (F) to deliver enhanced driver experiences, convenience, and services across its global fleet of vehicles, including the 2021 Ford F-150 pickup, Mustang Mach-E, and Bronco SUVs. NXPI’s vehicle networking, gateway, and i.MX 8 Series processors will help F deliver advanced multimedia user experiences with vivid graphics enabling in-car productivity, cloud services, enhanced voice recognition, and location-based applications. Both the companies are looking forward to a long-term partnership.

For its fiscal third quarter, ended October 3, 2021, NXPI’s total revenue increased 26.2% year-over-year to $2.86 billion. The company’s non-GAAP gross profit came in at $1.62 billion, up 42.5% from the prior-year period. Its non-GAAP operating income came in at $959 million for the quarter, up 63.7% from the prior-year period. Its adjusted net income of $1.02 billion represents a 64.5% rise from the prior-year period. NXPI’s EPS came in at $1.91, compared to a loss of $0.08 in the prior-year period. It had $2.30 billion in cash and equivalents as of September 30, 2021.

The consensus EPS estimate of $10.61 for the current year represents a 73.1% rise from the prior-year period. Analysts expect NXPI’s revenue to improve 28% year-over-year to $11.02 billion for the current year. It surpassed the consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to grow at a 21.7% rate per annum over the next five years.

The stock has gained 43.3% over the past year and 13% over the past six months. It ended yesterday’s trading session at $229.38. In terms of non-GAAP forward PEG, NXPI is currently trading at 0.70x, 55.8% lower than the 1.59x industry average. In terms of forward EV/EBITDA, NXPI is currently trading at 15.70x, 1.5% lower than the industry average of 15.94x. NXPI’s total assets declined at a CAGR of 1.7% over the past three years.

NXPI’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

The stock has an A grade for Growth and Momentum, and a B grade for Value and Quality. Click here to see the additional ratings for NXPI’s Stability and Sentiment.

The stock is ranked #29 in the same industry.

ON Semiconductor Corporation (ON)

ON manufactures and sells semiconductor components for various electronic devices worldwide. The company operates through three segments ─ Power Solutions Group (PSG); Advanced Solutions Group (ASG); and Intelligent Sensing Group (ISG). It serves OEMs, distributors, and electronic manufacturing service providers.

On December 7, 2021, ON introduced its new 600 V SUPERFET V family of MOSFETs, enabling power supplies to meet 80 Plus Titanium efficiency, especially at the highly challenging 10% load condition. These products offer excellent switching characteristics and lower gate noise, resulting in enhanced performance of electromagnetic interference (EMI). ON is expecting to receive widespread recognition across the industry.

ON’s revenues for its fiscal third quarter, ended October 1, 2021, increased 32.3% year-over-year to $1.74 billion. The company’s non-GAAP gross profit came in at $723.30 million, indicating a 63.9% rise from the year-ago period. Its non-GAAP operating income came in at $427.10 million, up 171% from the prior-year period. ON’s non-GAAP net income came in at $380.30 million for the quarter, representing a 240.2% year-over-year improvement. Its non-GAAP EPS increased 222.2% year-over-year to $0.87. The company had $1.39 billion in cash and cash equivalents as of October 1, 2021.

Analysts expect the stock’s EPS to grow 228.2% year-over-year to $2.79 in the current year. The consensus revenue estimate of $6.68 billion for the current year represents a 27.1% rise from the prior-year period. In addition, it surpassed Street EPS estimates in each of the trailing four quarters. Analysts expect the stock’s EPS to grow at a rate of 55.5% per annum over the next five years.

The stock has gained 108.1% over the past year and 74.4% over the past six months. It closed yesterday’s trading session at $65.28. ON’s 0.49x non-GAAP forward PEG is 69.8% lower than the 1.62x industry average. In terms of forward EV/EBITDA, ON is currently trading at 15.04x, 3.7% lower than the industry average of 15.62x. ON’s total assets grew at a CAGR of 6.5% over the past three years.

ON’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.

The stock has an A grade for Growth and Momentum, and a B grade for Value. Click here to see the additional ratings for ON (Stability, Sentiment, and Quality).

ON is ranked #37 in the same industry.

Kulicke and Soffa Industries, Inc. (KLIC)

Headquartered in Singapore, KLIC designs, manufactures, and sells capital equipment and tools used to assemble semiconductor devices, including integrated circuits (ICs), high and low powered discrete devices, light-emitting diodes (LEDs), and power modules. The company serves semiconductor device manufacturers, outsourced semiconductor assembly and test providers (OSATs), other electronics manufacturers, industrial manufacturers, and automotive electronics suppliers.

On December 15, 2021, KLIC and i3 Microsystems, Inc. collaborated to co-develop lithography solutions for the next-generation advanced microelectronics packaging technology. KLIC’s high-speed and high-accuracy LITEQ 500A 355nm laser-powered projection stepper has been adopted to expand capabilities and capacity within i3 Microsystems’s advanced microelectronics packaging facility. Both companies are looking forward to delivering advanced microelectronics packaging solutions for their customers and the industry.

KLIC’s net revenues for its fiscal fourth quarter, ended October 2, 2021, increased 173.1% year-over-year to $485.33 million. The company’s gross profit came in at $231.32 million, indicating a 160.2% from the year-ago period. Its non-GAAP income from operations came in at $160.20 million for the quarter, up 448.7% from the prior-year period. While its non-GAAP net income increased 535.7% year-over-year to $138.27 million, its non-GAAP EPS increased 520% to $2.17. The company had $362.79 million in cash and cash equivalents as of October 2, 2021.

The consensus revenue estimate of $1.07 billion for the current year represents a 20.5% rise from the prior-year period. It surpassed the consensus EPS estimates in each of the trailing four quarters. KLIC’s EPS is expected to grow at a rate of 20% per annum over the next five years.

The stock has gained 72% over the past year and 3.6% over the past six months. It ended yesterday’s trading session at $58.60. In terms of non-GAAP forward PEG, KLIC is currently trading at 0.51x, 68.8% lower than the 1.62x industry average. In terms of forward EV/EBITDA, KLIC is currently trading at 5.85x, 62.5% lower than the industry average of 15.62x. The stock’s total assets grew at a CAGR of 10.5% over the past three years.

KLIC’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

KLIC has an A grade for Value and Momentum, and a B grade for Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for KLIC’s Sentiment and Stability here.

KLIC is ranked #26 in the same industry.

Kulicke & Soffa Industries (KLIC) is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

MU shares were trading at $82.69 per share on Thursday afternoon, down $2.97 (-3.47%). Year-to-date, MU has gained 10.14%, versus a 26.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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