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3 Chip Stocks Sending Out Buy Signals

As digital tech advances and global consumer electronics adoption grows, the semiconductor industry seems to be on a clear upward trajectory. Hence, fundamentally strong chip stocks Skyworks Solutions (SWKS), Sumco (SUOPY), and STMicroelectronics (STM), which are trading at a discounted valuation, might be solid portfolio additions. Read on...

Following the enactment of President Biden’s CHIPS and Science Act, the U.S. semiconductor industry has experienced remarkable advancements. Moreover, the expanding realm of AI-based applications, spanning data centers, edge infrastructure, and endpoint devices, is fueling a growing need for AI chips.

Therefore, I think investors could consider dividend-paying chip stocks Skyworks Solutions, Inc. (SWKS), Sumco Corporation (SUOPY), and STMicroelectronics N.V. (STM).

The global semiconductor market is thriving due to widespread semiconductor use in electronics, industrial equipment, automotive, networking, etc. Additionally, the growing consumer electronics adoption worldwide is further driving its expansion.

According to a report by Mordor Intelligence, the global semiconductor industry is projected to reach $1.09 trillion by 2028, growing at a CAGR of 10.9%.

Additionally, the development and increasing use of generative AI techniques are driving the need for high-performance GPUs and specialized semiconductor devices. Also, the widespread adoption of AI-based applications in data centers, edge infrastructure, and endpoint devices is increasing the demand for AI chips.

As a result, the global AI chips market is projected to generate a revenue of $53.40 billion this year, marking a 20.9% increase from last year. By 2027, the AI chip market is anticipated to more than double compared to 2023, reaching $119.40 billion.

Furthermore, in the year following President Biden’s signing of the CHIPS and Science Act, the U.S. semiconductor industry has seen remarkable progress. Companies have committed over $166 billion to semiconductor and electronics manufacturing and research.

In addition, the Department of Commerce has launched a $39 billion program to boost semiconductor manufacturing, ensuring a secure national semiconductor supply.

Given these favorable trends, let’s delve into the foundational aspects of the top three Semiconductor & Wireless Chip stocks, commencing with the third-ranked option.

Stock #3: Skyworks Solutions, Inc. (SWKS)

SWKS designs, develops, manufactures, and markets proprietary semiconductor products globally through direct sales force, electronic component distributors, and independent sales representatives.

SWKS’ forward non-GAAP P/E of 12.78x is 45.7% lower than the 23.52x industry average. Its forward EV/Sales multiple of 11.45 is 38% lower than the 18.48 industry average.

On August 8, 2023, SWKS declared a cash dividend of $0.68 per share of the company’s common stock, representing a 10% increase from the prior quarterly dividend of $0.62 per share. The dividend is payable on September. 19, 2023. Also, the company has raised its dividend for seven consecutive years.

SWKS pays an annual dividend of $2.72, which translates to a yield of 2.52% on the current market price, higher than its four-year average dividend yield of 1.70%. It has raised its dividend at a CAGR of 14.7% over the past five years.

SWKS’ revenues increased 13.1% year-over-year to $1.07 billion in the fiscal third quarter that ended June 30, 2023. Its total operating expenses decreased 9.4% year-over-year to $233.40 million. Its non-GAAP net income stood at $276.30 million and $1.73 per share.

Analysts expect SWKS’ revenue and EPS to amount to $1.22 billion and $2.10 in the current quarter ending September 2023.

SKWS’ shares have gained 18.5% year-to-date to close the last trading session at $107.98.

SWKS’ POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a B grade for Momentum, Quality, Sentiment, and Value. It is ranked #10 in the 92-stock Semiconductor & Wireless Chip industry.  

To see SWKS’ additional POWR Ratings for Growth and Stability, click here.

Stock #2: Sumco Corporation (SUOPY)

Headquartered in Tokyo, Japan, SUOPY manufactures and sells silicon wafers for the semiconductor industry worldwide. It provides monocrystalline ingots, as well as polished, annealed, epitaxial, junction isolated, silicon-on-insulator, and reclaimed polished wafers.

In terms of forward EV/EBIT, SUOPY’s 6.45x is 67.4% lower than the 19.81x industry average. Its 4.06x forward EV/EBITDA is 74% lower than the industry average of 15.61x.

On August 8, SUOPY declared an interim dividend of ¥42 ($0.29), payable on September 5, 2023.

Its annual dividend of $1.18 yields 4.45% on the current market price. The company has a four-year average dividend yield of 2.52%. Its dividend payments have grown at a CAGR of 7.9% over the past three years.

For the half year that ended June 30, 2023, SUOPY’s net sales increased 13.2% year-over-year to ¥220.60 billion ($1.51 billion). The company’s operating income amounted to ¥46.70 billion ($319.50 million). Its net income attributable to owners of the parent increased 18.3% year-over-year to ¥49.60 billion ($339.34 million).

SUOPY’s revenue for fiscal year 2023 is likely to increase 6.1% year-over-year to $2.96 billion. Moreover, the company has exceeded the revenue estimates in three of the trailing four quarters, which is impressive.

The stock gained marginally year-to-date to close the last trading session at $26.43.

SUOPY’s bright outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

It has an A grade for Momentum and Stability and a B for Value. It is ranked #8 in the same industry.

Click here to access SUOPY’s additional grades for Growth, Sentiment, and Quality.

Stock #1: STMicroelectronics N.V. (STM)

Headquartered in Geneva, Switzerland, STM, and its subsidiaries design, develops, manufacture, and sell semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group; Analog, MEMS, and Sensors Group; and Microcontrollers and Digital ICs Group segments.

STM’s forward EV/EBITDA of 6.96x is 54.5% lower than the 15.29x industry average. Its forward EV/EBIT multiple of 9.02 is 51.2% lower than the 18.48 industry average.

On August 28, STM announced the details of its common share repurchase program, under which it repurchased 212,399 ordinary shares, equivalent to 0.02% of issued share capital, between August 21, 2023, and August 25, 2023, on the Euronext Paris market, at an average price of EUR42.96 ($46.82) per share, totaling EUR 9.13 million ($9.94 million).

This repurchase is intended to fulfill obligations related to share option programs and may be used for other lawful purposes as well.

The company pays an annual dividend of $0.24, which translates to a yield of 0.50% on the current market price, higher than its four-year average dividend yield of 0.65%. It has raised its dividend at a CAGR of 2.6% over the past three years.

STM’s net sales for the second quarter ended July 1, 2023, rose 12.7% year-over-year to $4.33 billion. Its gross profit rose 16.5% year-over-year to $2.12 billion. Its operating income increased 14.1% year-over-year to $1.15 billion. The company’s net income attributable to common stockholders rose 15.4% year-over-year to $1 billion.

In addition, its EPS came in at $1.06, representing an increase of 15.2% year-over-year.

Street expects STM’s revenue and EPS for fiscal year 2023 to increase 7.9% and 3.3% year-over-year to $17.41 billion and $4.33. It surpassed the consensus revenue estimates in each of the four trailing quarters.

The stock has gained 35.1% over the past year to close the last trading session at $47.80.

STM’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Value, Momentum, Sentiment, and Quality. Within the same industry, the stock is ranked #5.

Beyond the grades mentioned, we have also rated STM for Growth and Stability. Get all ratings here.

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Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…

Steve Reitmeister’s Trading Plan & Top Picks >

STM shares were trading at $47.68 per share on Thursday morning, down $0.12 (-0.25%). Year-to-date, STM has gained 34.34%, versus a 19.26% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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