As the world adapted to a new normal amid the COVID-19 pandemic, the demand for electronic products increased significantly. As a corollary to this, the demand for semiconductors also increased. Semiconductors are used in a broad variety of electronic devices, including PCs, smartphones and game consoles. The increasing popularity of autonomous vehicles is also contributing to the growing demand for semiconductors. The iShares PHLX SOX Semiconductor Sector Index Fund’s (SOXX) 52.1% gains over the past nine months reflect high investor interest in semiconductor stocks.

However, in addition to other negative factors,  tension between the United States and China has led to a semiconductor shortage. The United States is heavily reliant on China and Taiwan to meet its demand for these chips. But, the countries have been working to ease the tension and improve the market supply of chips. Furthermore, President Biden signed an executive order on February 25 that calls for a 100-day review of the semiconductor shortage, and Congress is expected to pass a legislation and spend $37 billion to help reduce the semiconductor shortfall.

Meanwhile, the semiconductor industry is off to a good start to 2021. Global semiconductor industry sales increased 13.2% year-over-year in January 2021, according to the Semiconductor Industry Association (SIA). And according to International Data Corporation (IDC), sales are  expected to hit  $476 billion in 2021, reflecting 7.7% year-over-year growth.

So, we think it  wise to bet on Texas Instruments Incorporated (TXN), NXP Semiconductors N.V. (NXP), and ASE Technology Holding Co. Ltd. (ASX). These companies  have been growing rapidly despite increasing competition in the overcrowded semiconductor market.

Click here to checkout our Semiconductor Industry Report for 2021

Texas Instruments Incorporated (TXN)

Headquartered in Dallas, Texas, TXN designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide. It operates mainly through two segments: Analog and Embedded Processing. The company markets and sells its semiconductor products through direct sales and distributors, and through its website.

TXN’s top line surged 21.7% year-over-year to $4.08 billion for the fourth quarter, ended December 31, 2020. In its core business, its analog revenue increased 25.2% year-over-year and by 13.7% year-over-year for its embedded processing segment. TXN’s gross profit also increased 26.2% year-over-year to $2.65 billion, while its  net income was $1.69 billion, up 57.8% year-over-year.

Analysts expect TXN’s EPS to improve 26.6% year-over-year to $1.57 for the current quarter, ending March 31, 2021. TXN surpassed the Street’s EPS estimates in each of the trailing four quarters. Also,  its consensus revenue estimate of $4.14 billion for the quarter ending June 30, 2021 represents a 27.7% rise year-over-year.

In February, TXN introduced a highly integrated Grade 0 brushless DC (BLDC) motor driver for 48-V high-power motor control systems, such as traction inverters and starter generators in mild hybrid electric vehicles (MHEVs). It also released a major advancement in electric vehicle (EV) battery management systems (BMS) in January. It  features the first independently assessed functional safety concept. TXN stock has gained 30.9% over the past six months because of its innovative product offerings. It closed yesterday’s trading session at $178.90.

TXN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Quality and a B grade for Momentum and Sentiment. We have also graded TXN for Growth, Value and Stability. Click here to access all TXN’s ratings.

TXN is ranked #21 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry.

NXP Semiconductors N.V. (NXPI)

Semiconductor company NXPI delivers  high performance mixed signal and standard product solutions. Its product portfolio includes microcontrollers, application processors, communication processors and wireless connectivity solutions. The company operates through four segments: High Performance Mixed Signal (HPMS), Standard Products (SP), and Corporate and Other.

For the fourth quarter, ended December 31, 2020, NXPI’s revenue increased nearly 9% year-over-year to $2.51 billion, driven primarily  by increased demand in the Automotive and Mobile end-markets. The company’s gross profit and operating income also increased 18.2% sequentially and 135% year-over-year, respectively. Its net income was  $309 million, up 171.1% year-over-year.

A consensus EPS estimate of $2.23 for the next quarter, ending June 30, 2021, represents a 137.2% rise year-over-year. NXPI surpassed  consensus EPS estimates in each of the trailing four quarters. Its consensus revenue estimate of $2.55 billion for the current quarter, ending March 31, 2021, represents a 26.4% rise from the prior-year period.

NXPI was included in the S&P 500 index on March 22, which marks an important milestone for it.  It also resumed  initial operations at its manufacturing facilities in Austin, Texas on March 11, following the severe winter storm and resulting  widespread disruption of gas, electricity and water supplies experienced across Texas. Its  Board of Directors has approved an interim dividend of $0.56 per ordinary share payable on April 5, 2021. The stock has rallied 57.2% over the past six months to close yesterday’s trading session at $187.28.

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

The stock has a B grade for Growth, Sentiment, and Momentum. In addition to the POWR Ratings grades we’ve just highlighted, one can see NXPI’s ratings for Value, Stability and Quality here.

NXPI is ranked #33 in the same industry.

ASE Technology Holding Co. Ltd. (ASX)

Based in Kaohsiung, Taiwan, ASX markets  a range of semiconductors packaging and testing, and electronic manufacturing services. Its segments include prices and research, market products, trading services, listing and issuer services, and education services. The company’s packaging services include flip chip ball grid array (BGA), advanced chip scale packages, quad flat packages, and thin quad flat packages, among others.

ASX’s net revenues surged 28.3% year-over-year to NT$148.88 billion for the fourth quarter (ended December 31, 2020). While its revenue from the EMS segment increased 62.4% year-over-year to NT$79.14 billion, its revenue from the packaging segment increased 6.7% year-over-year to NT$57.26 billion. ASX’s net income for the quarter was  NT$10.04 billion, up 57.4% year-over-year.

Analysts expect ASX’s EPS for its fiscal year 2021 to be $0.45, up 28.6% year-over-year. It’s earnings surprise history looks impressive, with the company surpassing the consensus EPS estimates in each of the trailing four quarters. For its fiscal year 2021, analysts expect ASX’s revenue to be  $18.87 billion, representing a 14.8% rise from the prior year period.

Last December,  the company was recognized for leadership in corporate sustainability by global environmental non-profit CDP and secured a place on its prestigious ‘A List’ for tackling climate change. ASX was also included in the 2020 Dow Jones Sustainability Indices (DJSI) World and Emerging Market segments in November. Also, for  the fifth year in a row,  it was named the Industry leader in the Semiconductors and Semiconductor Equipment Industry Group. Its  stock has gained 102.7% over the past year to close yesterday’s trading session at $7.42.

It’s no surprise that ASX has an overall B rating, which equates to Buy in our POWR Ratings system.

Also, the stock has an A grade for Value and Sentiment, and a B grade for Stability. Click here to see the additional POWR Ratings for ASX (Momentum, Growth, and Quality).

ASX is ranked #25 in the same industry.

The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Click here to checkout our Semiconductor Industry Report for 2021

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TXN shares were trading at $176.30 per share on Thursday morning, down $2.60 (-1.45%). Year-to-date, TXN has gained 8.07%, versus a 3.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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