Semiconductors have been red hot amid a global shortage.
Illustration by Michael Glenwood
Nearly every manufacturer in the world—from cars and trucks to refrigerators and videogame consoles—has desperately sought semiconductors. And investors have wanted semiconductor stocks as a result.
That intense global demand for chips could weaken next year as the pandemic eases and supply chains catch up from shortages. While the timing is still a matter of debate, 2021’s run-up in semiconductor stocks makes it an opportune moment to shed the most expensive names and seek out cheaper alternatives.
For the year to date, the PHLX Semiconductor Index, or SOX, is up 43%, handily outpacing the Nasdaq Composite ‘s 23% gain. The SOX is now trading at 7.9 times estimated next 12 months sales—more than double its historical 10-year average.
Barron’s looked for the cheapest stocks among the 30 constituents of the SOX, based on price to estimated 2022 earnings.
Memory chip firm Micron Technology (ticker: MU) is the cheapest chip stock in the pack, trading at 9.9 times forward earnings. On Dec. 20, the company reported strong results and released a better-than-expected current forecast. The stock, at a recent $94, has returned 28% so far this year.
Chip product-packaging and test-services provider Amkor Technology (AMKR) comes in second, trading at 10 times 2022 earnings estimates. Now around $24, the mid-cap chip stock has returned 65% in 2021.
Qorvo (QRVO) and Skyworks Solutions (SWKS), both suppliers for Apple (AAPL), trade at 13 and 13.5 times forward earnings, respectively. Both have lagged behind their peers: Qorvo, at $157, is down 6% in 2021, while Skyworks, at $156, is up 3%.
The fifth-cheapest stock is Intel (INTC), once the dominant power in the industry. The stock, at a recent $52, is up 4% on the year. Barron’s argued in a cover story in November 2020 that the company was ripe for a comeback.
Yet Bernstein analyst Stacy Rasgon says Intel is an example of a cheap but not necessarily attractive stock. CEO Pat Gelsinger may be investing billions of dollars in a turnaround effort, but the analyst is bearish.
“Intel’s problems have “been building for 10 years. And it’s going to take five to 10 years to fix it.”
— Stacy Rasgon, analyst at Bernstein
“He’s trying to fix 10 years of sin,” Rasgon says: “These are problems that didn’t just show up last quarter; they’ve been building for 10 years. And it’s going to take five to 10 years to fix it.”
Instead, Rasgon likes Qualcomm (QCOM) and Broadcom (AVGO), as well as semiconductor equipment makers Applied Materials (AMAT) and Lam Research (LRCX). All four also made our bargain-bin cut.
What’s on the high-end shelf? That would be Nvidia (NVDA), the best performer year to date in the Sox, returning roughly 130%. At a recent $300, Nvida trades at an eye-popping 60 times estimated 2022 earnings.
Rasgon acknowledges that the stock appears expensive. But he says he still recommends the shares because in tech, a high price/earnings ratio isn’t necessarily a reason to sell a stock.
The analyst sees Nvida continuing to monetize and expand its software offerings, while benefiting from growing interest in the metaverse. He has an Outperform rating and a $360 price target on the stock.
While questions persist about the outlook for global chip demand, there are still semiconductor stocks that stand to benefit.
Forward P/E
Market Value (bil)
YTD Total Return
Micron Technology / MU
9.9
$107.7
28.1%
Amkor Technology / AMKR
10.0
6.1
65.7
Qorvo / QRVO
13.0
17.3
-5.6
Skyworks Solutions / SWKS
13.5
25.9
3.6
Intel / INTC
14.5
210.8
6.7
Qualcomm / QCOM
17.7
208.5
24.5
Microchip / MCHP
18.3
49.0
29.2
II-VI / IIVI
18.5
7.3
-8.9
NXP Semiconductors/ NXPI
19.3
61.3
46.6
Applied Materials / AMAT
19.6
143.0
87.8
KLA / KLAC
20.0
66.0
70.0
ON Semiconductor / ON
20.2
29.7
110.6
Broadcom / AVGO
20.3
277.7
58.1
Lam Research / LRCX
20.7
102.3
55.3
Source: Bloomberg
Write to Connor Smith at connor.smith@barrons.com
