While exacerbated logistical disruptions caused by the Russia-Ukraine war have worsened the ongoing semiconductor shortage, the overwhelming demand for semiconductors for consumer electronics, electric vehicles, and other industries should hold investors’ interest in the industry. Furthermore, rising government and private investments worldwide to ramp up semiconductor production should help the industry achieve growth in the coming months. Also, the possible easing of logistical disruptions with negotiations between Russia and Ukraine to end the war should help the semiconductor industry. Investors’ interest in the semiconductor industry is evident in the VanEck Vectors Semiconductor ETF’s (SMH) 2.2% returns over the past month.
The passage of the $52 billion CHIPS Act by the U.S. Senate is also expected to strengthen domestic semiconductor manufacturing and research. (The bill now awaits passage by the House.) According to BlueWeave consulting, the global semiconductor market is estimated to grow at a 5.2% CAGR between 2022 and 2028.
Given this backdrop, we think fundamentally strong semiconductor stocks Micron Technology, Inc. (MU), STMicroelectronics N.V. (STM), United Microelectronics Corporation (UMC), Renesas Electronics Corporation (RNECF), and Semtech Corporation (SMTC) could prove to be wise bets.
Micron Technology, Inc. (MU)
MU designs, manufactures, and sells memory and storage products worldwide. The New York City-based company operates through four segments: Compute and Networking Business Unit; Mobile Business Unit; Storage Business Unit; and Embedded Business Unit.
On March 29, 2022, MU’s President and CEO Sanjay Mehrotra said, “We’re leading the industry in technology across DRAM and NAND, and our product portfolio momentum is accelerating. With outstanding first-half results, Micron is on track to deliver record revenue and robust profitability in fiscal 2022.”
MU’s revenue came in at $7.79 billion for its fiscal year 2022 second quarter, ended March 3, 2022, up 24.9% year-over-year. Its non-GAAP net income was $2.44 billion, up 116.7% year-over-year. Also, its non-GAAP EPS came in at $2.14, up 118.4% year-over-year.
Analysts expect MU’s revenue to be $33.72 billion in its fiscal year 2022, representing a 21.7% year-over-year rise. The company’s EPS is also expected to increase 58.1% to $9.58 in 2022. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 7.3% in price to close Friday’s trading session at $76.18.
MU’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an A grade for Value and a B grade for Growth, Sentiment, and Quality. It is ranked #2 of 96 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to see the additional ratings for MU (Momentum and Stability).
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM and its subsidiaries design, develop, manufacture, and sell semiconductor products in Europe, the Middle East, Africa, the Americas, and Asia Pacific. Its segments are Automotive and Discrete Group; Analog, MEMS and Sensors Group; and Microcontrollers and Digital ICs Group.
On Jan. 27, 2022, Jean-Marc Chery, STM’s President and CEO, said, “For 2022, we plan to invest about $3.4 billion to $3.6 billion in CAPEX to further increase our production capacity and to support our strategic initiatives, including the first industrialization line of our new 300mm wafer fab in Agrate, Italy.”
For its fiscal fourth quarter, ended Dec. 31, 2021, STM’s net revenues came in at $3.56 billion, up 9.9% year-over-year. Its net income was $750 million, up 28.9% year-over-year, while its EPS came in at $0.82, up 30.2% year-over-year.
STM’s revenue is expected to be $15.06 billion in fiscal 2022, representing an 18% year-over-year rise. The company’s EPS is expected to increase 48.1% year-over-year to $3.2 in 2022. In addition, it surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 17.4% in price to close Friday’s trading session at $42.76.
It is no surprise that STM has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has a B grade for Value and Quality.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC operates as a semiconductor wafer foundry in Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. It operates through Wafer Fabrication and New Business segments.
On Jan. 25, 2022, Jason Wang, UMC’s co-president, said, “We will continue to deepen collaboration with customers with our differentiated specialty technologies, manufacturing excellence, and capacity expansions closely linked to the demands of our partners. At the same time, we will keep pushing for cost reduction and meticulously manage our CapEx in order to deliver sustainable and healthy returns for our shareholders.”
UMC’s operating revenues came in at $2.14 billion for the fourth quarter, ended Dec. 31, 2021, up 30.5% year-over-year. Its net income was $578 million, up 46.7% year-over-year, while its EPS came in at $0.24, up 41.6% year-over-year.
Analysts expect UMC’s revenue to be $9.25 billion in its fiscal year 2022, representing a 20.1% year-over-year rise. The company’s EPS is also expected to increase 34.1% per annum for the next five years. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock closed Friday’s session at $8.80.
UMC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.
Renesas Electronics Corporation (RNECF)
Based in Tokyo, Japan, RNECF, along with its subsidiaries, researches, develops, designs, manufactures, sells, and services semiconductors in Japan, China, North America, Europe, and the rest of Asia. Its segments are Automotive Business and Industrial/Infrastructure/IoT Business segments.
On March 8, 2022, RNECF announced the R-Car V4H system on chip (SoC) for central processing in advanced driver-assistance (ADAS) and automated driving (AD) solutions. Naoki Yoshida, RNECF’s Vice President, Automotive Digital Products Marketing Division, said, “We have seen excellent customer response to our R-Car V3H and V3M with high volume production, and we are pleased to extend our offering with the R-Car V4H.”
RNECF’s revenue for the year ended Dec. 31, 2021, came in at ¥994.42 billion ($8.11 billion), up 38.9% year-over-year. Also, its profit was ¥127.41 billion ($1.04 billion), up 178.6% year-over-year, while its EPS came in at ¥67.44, up 159.7% year-over-year.
Analysts expect RNECF’s revenue to increase 39.8% year-over-year to $2.78 billion for its fiscal second quarter, ended June 30, 2022. Over the past nine months, the stock has gained 10.2% in price to close Friday’s trading session at $11.64.
It is no surprise that RNECF has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Growth and a B grade for Value and Stability.
RNECF is ranked #6 in the Semiconductor & Wireless Chip industry. In addition to the POWR Ratings I have just highlighted, we have also rated the stock for Momentum, Sentiment, and Quality. Click here to get all the RNECF ratings.
Semtech Corporation (SMTC)
SMTC in Camarillo, Calif., designs, develops, manufactures, and markets analog and mixed-signal semiconductor products and advanced algorithms. Its products are designed to benefit the engineering community and the global community, and the company is dedicated to reducing the impact it and its products have on the environment.
On March 16, 2022, Mohan Maheswaran, SMTC’s President and CEO, stated, “Our focus on enabling a smarter, more sustainable planet, with investments in disruptive technologies that allow our customers to deliver low-power solutions for remote sensing and analytics for the Internet of Things (“IoT”), bandwidth expansion and reduction of electronic waste, drove record financial performance in fiscal year 2022. We believe these secular growth drivers will be the foundation for multi-year revenue growth for the Company.”
SMTC’s net sales came in at $190.55 million for the fourth quarter, ended Jan. 30, 2022, up 15.7% year-over-year. Its net income came in at $34.79 million, up 122.6% year-over-year. Furthermore, its EPS came in at $0.53, up 120.8% year-over-year.
SMTC’s revenue is expected to increase 13.4% to $840.02 million in 2023. Its EPS is expected to grow 28.7% to $3.36 in 2023. Also, it surpassed EPS estimates in each of the trailing four quarters. And over the past month, the stock has gained 2.5% in price to close Friday’s trading session at $67.78.
SMTC has an overall A rating equating to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B grade for Growth. It is ranked #3 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for SMTC (Value, Momentum, Stability, and Sentiment).
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MU shares were trading at $76.99 per share on Monday morning, up $0.81 (+1.06%). Year-to-date, MU has declined -17.35%, versus a -4.30% 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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