Wednesday, 28. June 2017  
05.08.2016 06:42
Author: Nic Wright

STOCK SCREEN: Semiconductor Stocks With Above Average Valuation Upside

 

It's exactly a year ago, that we have had a closer look at the semiconductor sector. In the meantime average DRAM selling prices (ASP) fell a further 40 percentage points. To draw a more comprehensive picture of the price movement, the last up-cycle had its trough in November 2012 and its peak in December 2013, afterwards ASPs fell more or less in a straight line for 30 months from January 2014 to June 2016.

 

More recently, however, pricing has been strengthening and spot pricing is up 15% since the beginning of June. The spot market is a reflection of the trends in the PC and smartphone DRAM demand, which seem to be supportive from a shipment and content perspective, based on leaner inventory levels at suppliers and better memory configurations for consumer PCs.

 

The semiconductor industry, despite its moderate size, contributes significantly to growth in US labor productivity and delivers enormous value to consumers. If the cycle in the U.S. economy is indeed gaining strength, as we suggested in our commentary from 21. June, then chip demand and pricing might benefit disproportionally from improving economic conditions.

 

These are the exact filter criteria we used:

1. Market capitalization above 3bn.

2. Above Average Margin-of-Safety based on Mean Multiple Upside.

3. Relative Price Strength over 6 months

 

Although an analysis of income statements over the cycle shows a number of profitable players in the semiconductor industry, most players are not able to sustainably generate profits above their weighted average cost of capital. The economic challenges that the semiconductor industry faces can be attributed to at least two factors: cyclicality, and rising R&D costs. But this high cyclicality, while bad for the industry, can be a blessing for stock-pickers, because the growth in profits generated during a cyclical upturn are disproportionately to growth in most other sectors. Here is our list of stocks sorted by name. All company names in the table below are linked to the single stock analysis tool ANALYZER:

 

CLICK COMPANY NAME FOR DETAILED STOCK VALUE ANALYSIS

COUNTRY

INDUSTRY

LAST PRICE

MARKET CAP.

MEAN MULTIPLE UPSIDE [%]

 CIRRUS LOGIC INC

 United States

 Semiconductors

49.01

3062

-10.8

 CYPRESS SEMICONDUCTOR CORP

 United States

 Semiconductors

11.56

3604

34.7

 MARVELL TECHNOLOGY GROUP LTD

 Bermuda

 Semiconductors

11.41

5833

20.7

 MICROCHIP TECHNOLOGY INC

 United States

 Semiconductors

55.75

11988

7.2

 MICRON TECHNOLOGY INC

 United States

 Semiconductors

14.03

14569

-12.8

 NXP SEMICONDUCTORS NV

 Netherlands

 Semiconductors

84.25

29151

-10.9

 ON SEMICONDUCTOR CORPORATION

 United States

 Semiconductors

9.78

4057

15.0

 QUALCOMM INC

 United States

 Semiconductors

60.98

89863

13.7

 STMICROELECTRONICS NV

 Netherlands

 Semiconductors

6.61

6017

-13.6