3 Buy-Rated Semiconductor Stocks Bucking Last Week’s Market Downtrend

NYSE: VMW | VMware Inc. News, Ratings, and Charts

VMW – The stock market trended down over the first trading week of 2022. But semiconductor stocks VMware (VMW), Dell Technologies (DELL), and Hewlett Packard (HPE) nevertheless registered stable gains over the period. Furthermore, analysts expect semiconductor sales to grow significantly this year, which should benefit these prominent industry players. These stocks are buy-rated in our proprietary rating system and, thus, we think could be solid additions to one’s portfolio. Let’s discuss.

Last week, bond yields rose on the Fed’s signal of forthcoming interest rate hikes and the continuing spread of the COVID-19 omicron variant. The S&P 500 retreated 1.9%, while the tech-heavy Nasdaq Composite lost 4.5%. The Dow Jones Industrial Index was down 0.3%.

The semiconductor industry is seeing increasing demand while chip supplies remain tight. According to a report by trade credit insurer firm Euler Hermes, global supply chain disruptions could remain high until the year’s second half. The firm also predicts that semiconductor sales will grow by another 9% and cross $600 billion for the first time in 2022.

Given this backdrop, we think the stocks of semiconductor companies VMware, Inc. (VMW), Dell Technologies Inc. (DELL), and Hewlett Packard Enterprise Company (HPE) might be solid bets. These stocks are rated B (Buy) in our proprietary POWR Ratings system and have delivered stable returns over the past five days, despite the broader market downtrend.

Click here to checkout our Semiconductor Industry Report for 2022

VMware, Inc. (VMW)

VMW in Palo Alto, Calif-, is a software provider for hybrid, multi-cloud, modern applications, networking, security, and digital workspaces. The company’s offerings include the VMware multi-cloud solutions, and it sells its products through distributors, resellers, and system vendors.

On Dec. 1, VMW announced that it had been named a leader in the IDC MarketScape: Worldwide SD-WAN Infrastructure 2021 Vendor Assessment. The recognition was accorded for its VMware SD-WAN cloud-delivered solution. Abe Ankumah, vice president of product management, secure access service edge (SASE), VMW said, “VMware, through its acquisition of VeloCloud, has a strong heritage in the SD-WAN space. We believe recognition from reports like the IDC MarketScape validate VMware as a leader for businesses of all sizes.”

For its fiscal third quarter, ended Oct. 29, VMW’s total revenue increased 11.3% year-over-year to $3.19 billion. Its non-GAAP operating income rose 5.3% from the prior-year quarter to $935 million. Its non-GAAP net income and non-GAAP net income per share came in at $725 million and $1.72, respectively, up 3% and 3.6% from the same period prior year..

The $7.28 consensus EPS estimate for fiscal 2023 indicates a 1.1% year-over-year increase. Likewise, the 13.90 billion consensus revenue estimate for the same year reflects a 7.9% improvement from its fiscal year 2022. Furthermore, VMW has an impressive surprise earnings history; it has topped consensus EPS estimates in three out of the trailing four quarters.

The stock has gained 6.8% in price over the past month and 1.9% over the past five days to close Friday’s trading session at $120.46.

VMW’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 are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

VMW has a Value, Sentiment, and Quality grade of B. In the 62-stock Software – Business industry, it is ranked #6. Click here to see the additional POWR Ratings for VMW (Growth, Momentum, and Stability).

Dell Technologies Inc. (DELL)

DELL in Round Rock, Tex., designs, develops, manufactures, and sells Information Technology (IT) solutions, products, and services. The company operates through its Infrastructure Solutions Group (ISG); Client Solutions Group (CSG); and VMware segments.

On Jan. 4, DELL introduced its new UltraSharp monitor that is expected to enhance visual experiences. The product should add to the company’s revenue stream.

Last month, DELL and Amazon Web Services, Inc. (AWS), an Amazon.com, Inc. (AMZN) company, collaborated to bring Dell’s cyber recovery vault to the AWS Marketplace with the launch of Dell EMC PowerProtect Cyber Recovery for AWS. This demonstrates the company’s technological prowess and dominance in the industry.

DELL’s non-GAAP net revenue increased 20.8% year-over-year to $28.41 billion in its fiscal third quarter, ended Oct. 29. Its non-GAAP operating income improved 5.2% from the same period in the prior year to $2.87 billion. Its non-GAAP net income and non-GAAP EPS rose 17.8% and 16.7%, respectively, from the prior-year quarter to $2.02 billion and $2.37/.

Analysts expect DELL’s EPS to increase 3% year-over-year to $8.24 for its fiscal year 2022. The Street expects DELL’s revenue to improve 11.5% from the prior year to $105.20 billion. In addition, DELL has topped the consensus EPS estimate in each of the trailing four quarters.

DELL’s shares have gained 48.2% in price over the past year and 1.8% over the past five days to close Friday’s trading session at $57.99.

It is no surprise that DELL has an overall B rating, which translates to Buy in our POWR Rating system. The stock has an A grade for Value. It is ranked #13 of the 53 stocks in the Technology – Hardware industry. The industry is rated B. To see the additional POWR Ratings for Growth, Momentum, Stability, Sentiment, and Quality for DELL, click here.

Hewlett Packard Enterprise Company (HPE)

HPE in Houston, Tex., is a solution provider that provides general-purpose servers for multi-workload computing and workload-optimized servers worldwide.

On Dec. 20, HPE announced that it had been chosen by NTT Business Solutions, a member company of NTT WEST Group, a Japanese network and system integrator, to provide hybrid cloud service to local governments, educational institutions, and businesses across western Japan. Regarding the collaboration, Hirokazu Mochizuki, managing director, HPE Japan, said, “We are honored that NTT West Group has chosen HPE’s portfolio to run data and applications that cannot be deployed in the public cloud due to security constraints, and are excited to see how the HPE GreenLake platform is being leveraged strategically to maximize their cloud business.”

Also in December, HPE’s Greenlake platform was selected by Barclays, a British universal bank for hybrid multi-cloud strategies and digital transformation across Barclay’s businesses. The venture might prove to be profitable for the company.

For its fiscal fourth quarter, end Oct. 31, HPE’s net revenue increased 2% year-over-year to $7.35 billion. Its non-GAAP net earnings and non-GAAP net EPS stood at $688 million and $0.52, respectively, registering a 28.1% and 26.8% improvement from the prior-year quarter.

The Street’s $2.02 EPS estimate for the fiscal year 2022 reflects a 3.1% year-over-year improvement. And the Street’s $28.61 billion revenue estimate for the same period indicates a 3% rise from the prior year. In addition, HPE has beaten consensus EPS estimates in each of the trailing four quarters.

Over the past year, HPE’s stock has gained 44.2% in price to close Friday’s trading session at $17.13. It has gained 6.1% over the past five days.

HPE’s promising prospects are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. HPE has a Value grade of B. In the 55-stock Technology – Communication/Networking industry, it is ranked #10. In addition to the POWR Rating grades we have stated above, one can see HPE ratings for Growth, Momentum, Stability, Sentiment, and Quality here.

Click here to checkout our Semiconductor Industry Report for 2022

VMW shares were trading at $122.54 per share on Monday afternoon, up $2.08 (+1.73%). Year-to-date, VMW has gained 5.75%, versus a -1.99% 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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