As the demand for consumer electronics has increased worldwide as individuals and organizations seek to stay connected remotely amid the COVID-19 pandemic, the demand for semiconductor chips that are needed to run these gadgets is on the rise. This, along with rising demand for semiconductors from the booming electric vehicle (EV) industry, has created a huge supply shortage. However, the resultant increase in chip prices has been working to the benefit of the chip manufacturers. This has attracted significant investor attention to the semiconductor space, as is evidenced by the SPDR S&P Semiconductor ETF’s (XSD) 59.1% returns over the past year versus the SPDR S&P 500 ETF’s (SPY) 41.4% returns.
With the growing applicability of chips in the tech era, which includes Internet of things (IoT), Artificial intelligence (AI), EV, 5G network, data centers and cloud computing, the demand for chips should keep rising. According to Research and Markets, the global semiconductor market is expected to grow at a 6%-plus CAGR between 2021- 2026. Furthermore, President Biden announced last month that he has bipartisan support for his proposed $50 billion in spending to address the semiconductor shortage, which is a testament to the industry’s importance and immense potential.
Given this favorable backdrop, we think it is wise to bet on STMicroelectronics N.V. (STM), Vishay Intertechnology, Inc. (VSH), and O2Micro International Limited (OIIM). They are still trading at reasonable valuations and have immense growth potential.
Click here to checkout our Semiconductor Industry Report for 2021
STMicroelectronics N.V. (STM)
Headquartered in Geneva, Switzerland, STM designs, develops, manufactures, and markets semiconductor products across Europe, Middle East, Africa, America, and Asia Pacific. It operates through three segments: Automotive and Discrete; Analog, MEMS and Sensors; and Microcontrollers and Digital ICs. Its offerings include automotive integrated circuits (ICs), application-specific integrated circuits (ASICs), and radio frequency (RF).
On May 6, STM launched a new family of ST Intelligent and Integrated Gallium Nitride (GaN) solutions—STi2GaN. Because the unique product combines the power and intelligence in compact, high-performance solutions it is expected to drive up the company’s sales in the near-term.
In March, STM’s micro-mirror scanning technology was chosen for Intel Corporation’s (INTC) RealSense High-Resolution LiDAR Depth Camera L515. Benedetto Vigna, the President of STM’s Analog, MEMS and Sensors Group, said, “This demonstrates our never-ending efforts to leverage our long-lasting leadership in MEMS to meet the demanding technical and supply needs of our customers.”
The company’s net revenue increased 35.2% year-over-year to $3.02 billion for the first quarter, ended April 3. Its operating income grew 90.3% year-over-year to $440 million, while its net income increased 89.6% year-over-year to $364 million. The company’s EPS increased 85.7% year-over-year to $0.39.
In terms of forward EV/EBITDA, STM’s 9.93x is 39.6% lower than the16.44x industry average. In terms of forward Price/Sales ratio, the stock’s 2.11x is 48% lower than the 4.05x industry average.
Analysts expect STM’s EPS and revenue to increase 270% and 38.4%, respectively, year-over-year to $0.37 and $2.89 billion for the current quarter, ending June 30. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 37.6% over the past year and closed yesterday’s trading session at $34.33.
STM’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Growth, Quality, Sentiment and Value. Within the B-rated Semiconductor & Wireless Chip industry, STM is ranked #1 of 98 stocks. To see the additional POWR Ratings for STM (Stability and Momentum), click here.
Vishay Intertechnology, Inc. (VSH)
VSH is a manufacturer and supplier of discrete semiconductors and passive electronic components. The company operates primarily through six segments—Metal Oxide Semiconductor Field Effect Transistors (MOSFETs), Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors. It serves various end-markets, including industrial, computing, automotive, consumer, telecommunications, power supplies, military and aerospace, and medical.
Last month, the company introduced the world’s best AEC-Q101 qualified p-channel -80 V TrenchFET MOSFET. It increases the power density and efficiency in automotive applications and is expected to give VSN an edge over its peers.
On February 24, VSH launched the industry’s first SMD Ceramic Safety Capacitors with a Y1 Rating of 500 VAC and 1500 VDC, which delivers industry-high capacitance to 4.7 nF. Given that this helps to reduce production costs, the demand for the product is expected to increase significantly in the coming months. Consequently, the company’s revenue could also increase in the near-term.
VSH’s net revenue increased 24.8% year-over-year to $764.63 million in the first quarter, ended April 3. Its operating income grew 105.2% year-over-year to $97.26 million. Its net earnings came in at $71.64 million, which represents a 161.6% year-over-year increase. And the company’s EPS was $0.49, up 157.9% year-over-year.
In terms of forward EV/Sales, VSH’s 1x is 75.4% lower than the 4.05x industry average. In terms of forward Price/Sales ratio, the stock’s 1.02x is 74.9% lower than the 4.05x industry average.
For the quarter ending June 30, analysts expect VSH’s EPS and revenue to increase 216.7% and 40%, respectively, year-over-year to $0.57 and $814.28 million. It surpassed consensus EPS estimates in three of the trailing four quarters. The stock has gained 47.8% over the past year and closed yesterday’s trading session at $22.46.
VSH’s strong fundamentals are reflected in its POWR Ratings. The company has an overall B rating, which equates to Buy in our proprietary ratings system. The stock has an A grade for Value, and a B grade for Growth and Quality.
We have also graded VSH for Stability, Sentiment and Momentum. Click here to access all VSH’s ratings. VSH is ranked #6 in the same industry.
O2Micro International Limited (OIIM)
Headquartered in George Town, the Cayman Islands, OIIM designs , develops, and markets integrated circuits (ICs) and solutions for power management components and systems internationally. The company’s offerings include analog and mixed-signal integrated circuits, and controls and monitors for battery charging and discharging. It also provides select and switch functionality and other products.
In February, OIIM announced that it was granted a patent grant for a key system and method for driving a light source. Dr. Yung Lin, an executive vice president at OIIM, noted that , “This invention provides a cost-effective solution to the system power management where both regulated DC output and LED driver are present.”
OII’s net revenue increased 49.1% year-over-year to $23.2 million for the first quarter ended March 31. Its operating income came in at $2.37 million compared to a $0.57 million operating loss in the prior-year period. Its net earnings were $2.48 million compared to a $1.54 million net loss in the prior-year period. The company’s EPS was $0.08 in the quarter compared to a $0.06 loss per share in its fiscal year 2021 first quarter.
In terms of forward EV/Sales, OIIM’s 1.5x is 62.9% lower than the 4.05x industry average. In terms of forward P/S, the stock’s 1.85x is 54.3% lower than the 4.05x industry average.
Analysts expect its EPS to increase 800% year-over-year to $0.09 for the current quarter ending June 30, 2021. It surpassed consensus EPS estimates in three of the trailing four quarters. Its revenue is expected to increase 41.9% year-over-year to $24.13 million in the current quarter. The stock has gained 321.5% over the past year and closed yesterday’s trading session at $6.47.
OIIM’s POWR Ratings reflect this solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It has an A grade for Value, and a B grade for Growth.
To see the additional POWR Ratings for OIIM (Momentum, Stability, Sentiment and Quality), click here. It is ranked #26 in the same industry.
Click here to checkout our Semiconductor Industry Report for 2021
STM shares were trading at $34.78 per share on Thursday morning, up $0.45 (+1.31%). Year-to-date, STM has declined -6.21%, versus a 10.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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