The coronavirus pandemic is wreaking havoc on global trade, investments, tourism and supply chains. Moreover, the virus-led panic has sparked rapid sell-offs in equity markets, pushing benchmark indices into bear market.
Investors, particularly, are having a tough time sailing through the current market turbulence. However, the panic-driven sell-off is creating solid buying opportunities in markets with robust fundamentals and growth prospects. Once normalcy resumes, beaten-down and oversold stocks in these markets are expected to rebound faster with handsome returns.
In this regard, semiconductors, the backbone of the current-day technology-driven economy, are among the few industries with the highest possibilities of making fast recoveries. Nonetheless, given the volatile situation, picking stocks will be a daunting task right now.
Let’s dig deeper to understand what makes the semiconductor space so fundamentally attractive.
What Makes Semiconductor Stocks Promising Bets
Although the coronavirus outbreak has been rattling most global markets, causing sharp drawdowns, we believe the pandemic-led scare will have limited impact on the semiconductor industry. This is owing to the ongoing digitization across industries, adoption of cloud computing, as well as integration of AI and machine learning, IoT, autonomous vehicles, AR/VR, and wearables.
Moreover, the coronavirus outbreak has, surprisingly, opened up newer avenues of growth for semiconductor companies. Shift in consumer preference for Internet-based services, thanks to increasing social distancing, will likely spur demand for smartphones, laptops and peripheral accessories. Furthermore, the growing demand for hardware that facilitates work-from-home setting is a key catalyst.
This trend is anticipated to curb the unfavorable impact of coronavirus-led supply-chain disruptions in the upcoming period.
Additionally, demand for high-speed Internet will likely hit record highs, which current 4G LTE-based networks might be unable to service properly. The demand spike for higher speed will result in accelerated deployment of 5G technology, which promises far more speed than the current 4G LTE, due to low latency.
Further, the crisis has brought the concept of contactless delivery mainstream. So far, the concept has been adopted by only online delivery operators in the food and grocery space, in a bid to avoid physical contact between delivery executives and customers.
Nevertheless, if the pandemic stretches over a longer period, more and more delivery and logistics companies will likely begin deploying drones and robots for delivery services, which, again, run on semiconductors.
Here, we have zeroed in on five semiconductor stocks that are well poised to benefit from this space’s solid growth prospects.
These stocks also have favorable combinations of a Growth Score of A or B, and a Zacks Rank #1 (Strong Buy) or #2 (Buy).
Per the Zacks’ proprietary methodology, stocks with such favorable combinations offer solid investment opportunities.
Intel’s INTC data-centric focus is a major growth driver. Strong uptake of its second-gen Xeon scalable processors as well as solid demand from cloud-service providers is likely to boost data-centric business revenues. This Zacks Rank #1 company is planning nine product releases on 10 nm in the current year. The firm will also add 25% wafer capacity across its 14 nm and 10 nm nodes this year.
The stock has a Growth Score of B. The company’s long-term expected EPS growth rate is 7.5%.
Intel Corporation Price
Synaptics SYNA is also equally well poised to capitalize on its market-leading position for both touchpads and secure fingerprint sensors amid upbeat trends in PC shipments. New design wins across all OEM leaders, including Dell, HP and Lenovo, deserve a special mention.
Apart from these, with respect to the IoT business, the ongoing momentum across the automotive segment is encouraging. Further, incremental adoption of this Zacks #1 Ranked company’s edge SoCs, integrated with AI and embedded neural networks capabilities for smart video and audio devices, is anticipated to favor its financial performance in the days ahead.
The company has a Growth Score of B. Synaptics’ fiscal 2020 earnings are expected to be up 44.5%.
Synaptics Incorporated Price
NVIDIA NVDA is anticipated to keep benefiting from solid demand for its GPUs in the gaming desktops and notebooks. Also, an increase in Hyperscale demand is a tailwind for this chipmaker’s data-center business. Additionally, ray-traced gaming, rendering, high-performance computing, AI and self-driving cars are key growth areas for this Zacks #2 Ranked firm.
The company has a Growth Score of A. Additionally, the company has a long-term expected EPS growth rate of 12.7%.
NVIDIA Corporation Price
FormFactor FORM is likely to continue benefiting from solid demand for both Foundry & Logic probe cards. Growing probe-card demand, customer node transitions and new design releases are major positives for this Zacks Rank #2 company. Further, its increasing focus on Mobile SoC and Mobile DRAM probe-card segments is another key growth driver.
The stock has a Growth Score of A. Moreover, the company’s earnings are likely to grow 10% year over year in 2020 as well as 2021.
FormFactor, Inc. Price
Rambus RMBS has been gaining from growing traction in tokenization solutions. Apart from mobile payments and retail, the company has expanded its tokenization offerings into markets like account-based payments, e-commerce and blockchain. Rambus has also rolled out Vaultify Trade that provides bank-grade tokenization for blockchain.
Per a recent report by MarketsandMarkets, the overall smart ticketing market is expected to reach $20.4 billion by 2023, at a CAGR of 14.99% during the 2018-2023 period. This is an encouraging projection for the company.
The stock has a Growth Score of B. The long-term projected EPS growth rate for this Zacks #2 Ranked company is 15%.
Rambus, Inc. Price