Stocks were mixed through morning trading Wednesday, with some of the top gainers such as Western Digital WDC coming from the chip industry. Investors are still waiting for concrete details on the U.S.-China trade front, but the Wall Street Journal reported Tuesday that the two sides plan to delay the new tariffs scheduled to start on December 15.
Meanwhile, House Democrats struck a deal to support the new USMCA trade agreement, which could help further boost the U.S. economy as unemployment rests at 50-year lows. This means stocks might have more runway, even with the S&P 500 up 24% in 2019.
Therefore, investors should start to look for stocks that seem poised to expand in 2020. One industry that stands out is the semiconductor space, with many firms set to post gains after a rough 12 months for the historically cyclical market. For example, the largest U.S. chip maker by revenue, Intel INTC and others raised their outlooks.
Plus, semiconductors are a vital cog in ongoing technological revolution from cloud computing to artificial intelligence and integral for tech giants from Apple AAPL to Microsoft MSFT, and nearly everyone in between.
With this in mind, we found three semiconductor stocks with the help of our Zacks Stock Screener that investors might want to consider buying for 2020…
Power Integrations, Inc. POWI
Power Integrations is a semiconductor technologies firm that operates in the high-voltage power conversion space that is used in everything from LED lighting to renewable energy. The company topped our Q3 estimates and returned to year-over-year sales growth, driven by expansion in its communications category, which was highlight by “accelerated adoption of fast chargers for smartphones.” The San Jose, California-based firm with a $2.7 billion market cap also raised its quarterly dividend by 12%.
POWI shares have moved sideways over the last three months but have surged 50% in 2019 to top its industry’s 34% expansion. The stock rests below its 52-week highs and its Semiconductors – Power industry is in the top 1% of our more than 250 Zacks industries. Power Integrations has also seen its earnings estimate revisions activity trend upward to help it earn a Zacks Rank #2 (Buy).
Our current Zacks estimates call for POWI’s adjusted Q4 earnings to surge over 44% on 22.5% higher sales. This strong growth is expected to continue in Q1 to help lift its fiscal 2020 earnings by 23% on 12.3% revenue expansion. Moving forward, Power Integrations stands to benefit from renewable energy expansion in the U.S. Renewables accounted for 17% of U.S. electricity generation in 2018—just behind nuclear. As technologies become more powerful across the board, POWI’s high-voltage power conversion solutions look set to play a key role.
Applied Materials, Inc. AMAT
Applied Materials topped our Q4 estimates in mid-November and raised its Q1 fiscal 2020 guidance, as signs of industry-wide demand recovery continue. The semiconductor equipment firm’s sales and earnings did decline in all four quarters last year. Nonetheless, AMAT stock has soared nearly 80% in 2019 after it suffered, along with many tech powers, a late 2018 selloff. Applied Materials is much larger than POWI, with a $54 billion market cap. The firm is also a leader in “materials engineering solutions” that are used to make “virtually every new chip and advanced display in the world.” And management is confident the company will thrive in the big-data and AI age.
Peeking ahead, AMAT’s revenues are projected to surge 14% in fiscal 2020 and another 7.3% in 2021 to reach $17.86 billion, which would easily top 2018’s $17.25 billion. On the bottom-line, its adjusted FY20 EPS figure is projected to pop 24%, with 2021 expected to come in another 14.4% higher. Applied Materials’ consensus earnings estimates have soared recently, with its Q1 EPS estimate up 24%—$0.92 vs. $0.72—while its FY20 jumped 14% and FY21 popped 10.5%. This earnings revision positivity helps AMAT hold a Zacks Rank #1 (Strong Buy).
AMAT stock currently sits below its 52-week highs and has consistently bounced off its 50-day moving average every time it has slipped a little in 2019. Along with its industry-topping run of 150% in the last five years, Applied Materials pays an annualized dividend of $0.84 per share, for a yield of 1.48%. Plus, the company repurchased 60 million shares of common stock in fiscal 2019. AMAT is also trading at 14.7X forward 12-month Zacks earnings estimates, which marks a discount against its industry’s 21.1X average and its own five-year high of 19.2X. AMAT is also part of our Semiconductor Equipment - Wafer Fabrication industry that is currently the No. 2 ranked Zacks industry.
Nvidia is a GPU powerhouse that fell victim over the last four quarters to the cyclical nature of the semiconductor industry and its own outsized success. Still, its video game business remains strong as its graphics chips provide more realistic gameplay in the $152 billion global gaming market. NVDA has also bolstered its data centers business and other segments. CEO Jensen Huang said last quarter that it expanded its “reach beyond the cloud, to the edge, where GPU-accelerated 5G, AI and IoT will revolutionize the world’s largest industries.”
Despite an overall downturn over the last 12 months, NVDA shares are up 48% in the last six months and 62% in 2019, to outpace Micron MU and Intel. Nvidia stock does sit near its 52-week highs, but still rests nearly 25% below its October 2018 highs, which could give the stock plenty of room to run. And it is trading far below its three-year highs of 57X forward 12-month earnings estimates at 37.6X.
Looking ahead, the Santa Clara, California-headquarter firm’s Q4 fiscal 2020 revenue is projected to surge 34% to help lift adjusted earnings by 107.5%. Meanwhile, Nvidia’s adjusted full-year fiscal 2021 earnings are projected to jump 30% on the back of 19.4% higher sales that would see it reach $12.86 billion. And Nvidia’s longer-term earnings revision picture has jumped recently to help it sport a Zacks Rank #2 (Buy). NVDA also rocks a “B” grade for Growth in our Style Scores system.
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Western Digital Corporation (WDC) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Intel Corporation (INTC) : Free Stock Analysis Report
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