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Buy or Sell? 3 Semiconductor Stocks to Watch

The rise in chip demand across various sectors and government initiatives are expected to boost the semiconductor industry. Given this scenario, let’s assess the prospects of semiconductor stocks Skyworks Solutions (SWKS), Trio-Tech (TRT), and Qorvo (QRVO)...

The semiconductor market faced a slowdown in 2023, with a projected 9% decline compared with 2022. The memory market is particularly hard-hit, with a 37% drop, while the logic, analog and discrete markets have remained relatively flat.

Despite the challenging market conditions in 2023, recovery is expected this year, driven by strong demand for high-performance computing and a soft inventory reduction in wireless communication and smartphones. Given the industry’s steady growth prospects, investors could consider quality semiconductor stocks Skyworks Solutions, Inc. (SWKS), Trio-Tech International (TRT), and Qorvo, Inc. (QRVO).

The global semiconductor market is expected to grow at a 12.3% CAGR until 2032. This expansion can be ascribed to the extensive usage of semiconductors in a wide range of end-use applications. Chips are essential in advancing sectors like electronics, industrial equipment, automotive, networking and communications, and data processing.

The Biden administration is expected to award billions of dollars in subsidies to top semiconductor companies in the coming weeks to help build new factories in the United States. The forthcoming announcements are aimed at kick-starting the manufacturing of advanced semiconductors that power smartphones, artificial intelligence and weapons systems.

With these trends in mind, let’s delve into the fundamentals of the three Semiconductor & Wireless Chip stocks mentioned above.

Stocks to Buy:

Skyworks Solutions, Inc. (SWKS)

SWKS, together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products in the United States, China, South Korea, Taiwan, Europe, the Middle East, Africa, and the rest of Asia-Pacific.

SWKS’ trailing-12-month levered FCF margin of 24.55% is 177% higher than the industry average of 8.86%. Its trailing-12-month EBIT margin of 24.17% is 401.6% higher than the industry average of 4.82%.

For the fiscal fourth quarter (ended September 39, 2023), SWKS’ net revenue came in at $1.22 billion. Its gross profit came in at $478.20 million. The company’s net income and EPS came in at $244.80 million and $1.54.

Analysts expect SWKS’ revenue to be $1.20 billion for the fiscal quarter ended December 2023. Its EPS is expected to be $1.95 for the same quarter.

SWKS’s shares have gained 19.8% over the past three months to close the last trading session at $106.15.

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

It has a B grade for Value and Quality. It is ranked #17 out of 91 stocks in the Semiconductor & Wireless Chip industry.

Beyond what is stated above, we’ve also rated SWKS for Stability, Momentum, Growth, and Sentiment. Get all SWKS ratings here.

Trio-Tech International (TRT)

TRT offers semiconductor manufacturing, testing, and distribution services globally. The company specializes in developing test equipment and provides testing services for semiconductor manufacturers.

TRT’s trailing-12-month EBITDA margin of 16.62% is 80% higher than the industry average of 9.24%. Its 8.28% trailing-12-month CAPEX / Sales is 246.3% higher than the 2.39% industry average.

In the first quarter ended September 30, TRT generated revenue and net income of $9.97 million and $207 thousand. The company’s EPS stood at $0.05. Its operating expenses declined 1.3% year-over-year to $2.52 million. In addition, as of September 30, 2023, the company’s current assets stood at $32.35 million, compared to $28.83 million as of June 30, 2023.

Shares of TRT have gained 15.9% over the past nine months to close the last trading session at $4.98.

It’s no surprise that TRT has an overall rating of B, which equates to Buy in our proprietary rating system.

TRT has an A grade for Momentum and Value and a B in Sentiment. It is ranked #15 in the same industry.

In addition to the POWR Ratings highlighted above, one can access TRT’s ratings for Quality, Growth, and Stability here.

Stock to Hold:

Qorvo, Inc. (QRVO)

QRVO engages in development and commercialization of technologies and products for wireless, wired, and power markets. It operates through three segments: High Performance Analog (HPA); Connectivity and Sensors Group (CSG); and Advanced Cellular Group (ACG).

On December 18, 2023, QRVO announced that it had reached a definitive agreement with Luxshare Precision Industry Co., Ltd. (Luxshare, 002475.SZ), a global advanced contract manufacturer, under which Luxshare will acquire QRVO’s assembly and test facilities in Beijing and Dezhou, China.

QRVO’s trailing-12-month EBITDA margin of 11.59% is 25.5% higher than the industry average of 9.24%. However, its trailing-12-month gross profit margin of 37.36% is 23.6% lower than the industry average of 48.90%.

QRVO’s revenue for the fiscal second quarter ended September 30, 2023, decreased 4.7% year-over-year to $1.10 billion. However, its non-GAAP gross profit increased 87.9% year-over-year to $525.25 million. Its non-GAAP operating income rose 498.3% over the prior-year quarter to $279.43 million. For the same quarter, its non-GAAP net income and net income per share came in at $235.51 million and $2.39, up 601.4% and 602.9% year-over-year, respectively.

QRVO’s EPS for the fiscal third quarter (ended December 2023) is expected to be $1.66. Its revenue is expected to be $1 billion for the same quarter. In addition, the company exceeded the consensus revenue and EPS estimates in each of the trailing four quarters.

Over the past three months, the stock has gained 20.2% but declined 9.3% over the past month to close the last trading session at $103.70.

QRVO’s fundamentals are reflected in its POWR Ratings. It has an overall rating of C, which equates to Neutral in our proprietary rating system.

The stock has a C grade for Value, Momentum, and Quality. It is ranked #19 in the same industry.

Click here to access the additional QRVO ratings (Growth, Sentiment and Stability).

What To Do Next?

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SWKS shares rose $0.35 (+0.33%) in premarket trading Tuesday. Year-to-date, SWKS has declined -5.58%, versus a 3.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.


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