The global semiconductor shortage has created production bottlenecks in several industries, especially the consumer electronics and electric vehicle (EV) spaces. However, the popularity of remote working structures and digital transformation has created a substantial demand for semiconductors worldwide.
The Biden Administration has proposed a $52 billion investment to boost semiconductor production. Moreover, other governments and industry giants worldwide are investing heavily to keep pace with the growing demand. According to recent research from International Data Corp. (IDC), the global semiconductor market is expected to grow 17.3% year-over-year in 2021.
Given this backdrop, we think the quality semiconductor stocks STMicroelectronics N.V. (STM), Amkor Technology, Inc. (AMKR), and ChipMOS TECHNOLOGIES INC. (IMOS) could be solid bets on every market dip. These stocks currently look undervalued, given their growth potential.
Click here to checkout our Semiconductor Industry Report for 2021
STMicroelectronics N.V. (STM)
STM designs, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company is headquartered in Geneva, Switzerland.
On September 23, STM collaborated with European fashion house Paco Rabanne to introduce advanced contactless technology in Paco’s new fragrance launch. To give shape to this innovative idea demonstrates STM’s technological prowess and should aid the company’s further growth in the contactless technology space.
On September 22, the company launched its new generation automotive intelligent switches, the first in the market with digital current sensing among fully digital on-clip diagnostic features. This addition to its portfolio should enable the company to remain a leading player in the industry.
In terms of forward EV/EBITDA, STM is currently trading at 13.15x, which is 16.9% lower than the 15.83x industry average. Its 4.39 forward Price/Book multiple is 32.1% lower than the 6.46 industry average.
In its second fiscal quarter, ended July 3, STM’s net revenues increased 43.4% year-over-year to $2.99 billion. Its operating margin climbed 1,120 basis points from the prior-year quarter to 16.3% of net revenues, while its net income came in at $412 million, up 357.2% from the same period last year. Its EPS rose 340% year-over-year to $0.44.
A $0.53 consensus EPS estimate for the current quarter (ending September 2021) indicates a 103.8% year-over-year increase. Likewise, the $3.21 billion consensus revenue estimate for the current quarter reflects a 20.2% improvement from the prior-year quarter. Moreover, STM has an impressive earnings surprise history; it has topped consensus EPS estimates in three out of the trailing four quarters.
Shares of STM have declined marginally over the past five days to close yesterday’s trading session at $46.48. The stock has gained 59% over the past year.
STM’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
STM has a Growth, Value, Momentum, and Sentiment grade of B. In the 97-stock Semiconductor & Wireless Chip industry, it is ranked #4. This industry is rated B.
Click here to see the additional POWR Ratings for Stability and Quality for STM.
Amkor Technology, Inc. (AMKR)
AMKR in Tempe, Ariz., provides semiconductor chip testing and packaging solutions for customers globally. It offers turnkey packaging and test services, including semiconductor wafer bump, wafer probe, wafer back-grind, package design, packaging, and test and drop shipment services.
On August 10, AMKR announced that it is advancing its 5G RF module design, addressing the need for advanced RF front-end module packaging for 5G devices. Concerning this development, Giel Rutten, AMKR President and CEO said, “With our DSMBGA platform, we’ve established a preferred advanced packaging solution for this domain.”
In terms of forward EV/Sales, AMKR is currently trading at 1.08x, which is 72.7% lower than the 3.97x industry average. Its 1.06 forward Price/Sales multiple is 73.9% lower than the 4.06 industry average.
In its second fiscal quarter, ended June 30, AMKR’s net sales increased 19.9% year-over-year to $1.41 billion. Its operating income rose to $155.12 million, up 79.3% from the prior-year quarter. Its net income increased 125.3% year-over-year to $126.46 million, while its net income per common share came in at $0.51, up 121.7% from the same period last year.
Analysts expect AMKR’s EPS to increase 71.4% year-over-year to $2.4 in the current year (fiscal 2021). Likewise, the $6.14 billion consensus revenue estimate for the current year indicates a 21.5% year-over-year rise. In addition, AMKR has topped consensus EPS estimates in all four trailing quarters.
AMKR’s stock has gained 147.2% in price over the past year but has declined 1.1% over the last five days to close yesterday’s trading session at $26.97.
It’s no surprise that AMKR has an overall A rating, which translates to Strong Buy in our POWR Rating system.
The stock has an A grade for Value, and a B grade for Growth, Momentum, and Sentiment. It is ranked #6 in the Semiconductor & Wireless Chip industry.
To see the additional POWR Ratings for Stability and Quality for AMKR, click here.
ChipMOS TECHNOLOGIES INC. (IMOS)
IMOS develops and sells high-integration and high-precision Integrated Circuits (ICs) globally. The company also provides full-range back-end testing solutions for its semiconductors. It is headquartered in Hsinchu, Taiwan.
On September 1, the company announced a $1.582 dividend per ADS, which was to be paid on September 8, 2021.
IMOS 3.94 forward EV/EBITDA multiple is 75.1% lower than the 15.83 industry average. In terms of forward Price/Sales IMOS is currently trading at 1.34x, which is 66.9% lower than the 4.06x industry average.
In its second fiscal quarter, ended June 30, IMOS’ revenue increased 28.6% year-over-year to $250.20 million. Its gross margin rose 7.5 percentage points from the prior-year quarter to 28.2%, while its operating profit margin improved 7.6 percentage points from the same period last year to 22.1%. Its earnings per equivalent ADS increased 133.3% year-over-year to $1.26.
The $264.94 million consensus revenue estimate for the current quarter (ending September 2021) reflects a 33.5% year-over-year increase. In addition, IMOS has an impressive revenue surprise history; it has topped consensus revenue estimates in each of the trailing four quarters.
The stock has gained 98.4% in price over the past year. However, it has retreated 2.1% over the past five days to close yesterday’s trading session at $37.95.
IMOS’ POWR Ratings reflect its promising outlook. The stock has an overall rating of A which equates to Strong Buy in our POWR Rating system.
IMOS has a Value grade of A, and a Growth, Momentum, Stability, and Sentiment grade of B. It is ranked #1 in the Semiconductor & Wireless Chip industry.
In addition to the POWR Rating grades we’ve stated above, one can see the IMOS rating for Quality here.
Click here to checkout our Semiconductor Industry Report for 2021
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STM shares were unchanged in after-hours trading Friday. Year-to-date, STM has gained 25.44%, versus a 19.89% 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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