Jul 27, 2022
The semiconductor sector had a strong bull run in 2020 and 2021. But in 2022, it’s giving off a completely different vibe.
Year-to-date, the iShares Semiconductor ETF (SOXX) has plunged 31%. A lot of chipmakers have fallen deep into bear market territory.
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Even seasoned investors can lose money in this volatile sector. For instance, venture capitalist Paul Pelosi — husband of House Speaker Nancy Pelosi — recently sold 25,000 shares of graphics card giant Nvidia (NVDA). According to a public disclosure, the transaction resulted in “a total loss of $341,365.”
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But on Wednesday, the Senate voted to pass the $280 billion “CHIPS and Science Act,” a package of subsidies and research funds to increase American competitiveness in semiconductors and advanced technology.
The bill will now go to the House for approval. The bundle aims to boost domestic chip manufacturing. And it could give investors a new reason to check out the beaten-down sector.
The key? Look for semiconductor companies that actually do the manufacturing — here are three to get you started.
Intel (INTC)
Let’s begin with Intel, which made its name by making the x86 series of microprocessors that are found in most personal computers today. Over the years, the chipmaker’s business has expanded substantially.
Other than its PC-centric Client Computing Group, Intel also operates Datacenter and AI Group, Network and Edge Group, Accelerated Computing Systems and Graphics Group, Mobileye, and Intel Foundry Services.
In fiscal Q1 ended Apr. 2, revenue from Intel’s Client Computing Group – the company’s largest segment – declined 13% year over year, but all other groups posted revenue growth. Add up, the company earned $18.4 billion of total revenue for the quarter, down 7% from a year ago.
Intel shares have fallen more than 25% year to date, but Tigress Financial sees a rebound on the horizon. The firm has a ‘buy’ rating on Intel and a price target of $72 – roughly 82% above where the stock sits today.
Intel is scheduled to report Q2 results on Thursday, July 28 after the closing bell.
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Texas Instruments (TXN)
You might know Texas Instruments from using its graphic calculators in high school. But the company is much more than a calculator manufacturer.
Headquartered in Dallas, Texas Instruments makes analog and embedded processing chips for a wide range of industries, including automotive, industrial, personal electronics, communications equipment and enterprise systems.
The company boasts some very impressive growth figures in terms of cash flow and shareholder returns.
From 2004 to 2021, Texas Instruments’ free cash flow per share increased at an annual rate of 12%. It has also announced 18 consecutive annual dividend increases, with payout climbing at a compound annual growth rate of 25%. And by repurchasing its shares, the company has reduced its share count by 46% during this period.
Like most chipmakers, Texas Instruments stock is in the red year to date, but its latest earnings report did cheer up investors.
On Tuesday afternoon, the company reported that revenue rose 14% year over year in Q2 while earnings per share increased 20%. The stock is up 5% on Wednesday morning.
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More gains could lie ahead. Oppenheimer analyst Rick Schafer has an ‘outperform’ rating on Texas Instruments and a price target of $200 – implying a potential upside of 18%.
Micron Technology (MU)
With a market cap of around $67 billion, Micron is quite a bit smaller than Intel and Texas Instruments. But it’s also caught in this round of sell-off in the semiconductor sector.
In fact, the stock had the most painful journey among the three: Micron shares have plunged a painful 37% in 2022.
And that could give contrarian investors something to think about – especially considering how the underlying business has been performing.
In the fiscal quarter ended June 2, Micron’s revenue grew 11% year over year to $8.64 billion. Adjusted earnings came in at $2.94 billion, or $2.59 per share, up from $2.44 billion, or $2.14 per share earned in the year-ago period.
Goldman Sachs analyst Toshiya Hari sees an opportunity in the company. Hari has a ‘buy’ rating on Micron and a price target of $75. Considering that Micron shares trade at $60.25 today, the price target implies a potential upside of 24%.
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Jing is an investment reporter for Moneywise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
