Semiconductor stocks were battered by market volatility earlier this year, but tech has made a strong recovery, and with several interesting trends like the Internet of Things and artificial intelligence on the rise, it is still an exciting time to be investing in chip-making corner of the technology sector.
While tech behemoths like Microsoft (MSFT ) and Apple (AAPL ) may hog all the headlines, it has really been the companies powering their technologies—the semiconductor manufacturers—that have been garnering the attention of Wall Street.
Indeed, as our “Computer and Technology” sector has gained nearly 21% over the past year, semiconductor companies have been a driving factor behind its growth. The aforementioned emerging tech trends have created new consumer demand, and the semiconductor makers are delivering.
Luckily, the proven Zacks stock picking methods are effective across all industries. Check out these Zacks Rank #1 (Strong Buy) semiconductor stocks right now:
1. Texas Instruments Incorporated (TXN )
Although you might recognize the brand because of its calculators, Texas Instruments is actually one of the leading suppliers of advanced semiconductors in the world. It functions as one of the top players in the analog IC and embedded processor fields. The company has also developed into a major IoT pick, reporting year-over-year sales growth of 20% in the unit that handles this business during its most recent quarter.
Meanwhile, the semiconductor firm surpassed revenue estimates and released in-line guidance. This has led to more bullish analyst sentiment and propelled the stock to a Zacks Rank #1 (Strong Buy). The stock also has a Forward P/E of 20.8 and a PEG of 2.2, so while it is not the cheapest chip stock on the market, investors are still getting a decent price for its earnings and earnings growth outlook.
It is also worth noting that TXN offers investors a dividend yield of about 2.2% right now.
2. Mellanox Technologies, Inc. (MLNX )
Mellanox Technologies is a leading supplier of semiconductor-based, interconnected products to world-class server, storage, and infrastructure OEMs. The company’s VPI enables standard communication protocols to operate over any converged network with the same software solution.
MLNX has started to pick up steam after its fourth consecutive earnings beat. It is also an explosive growth pick, with earnings and revenue expected to improve by 90% and 23%, respectively, this year. Shares are currently trading with a reasonable Forward P/E of 19.8 and an attractive PEG of 1.3.
3. Micron Technology, Inc. (MU )
Micron is a leading provider of semiconductor memory solutions. It manufactures and markets DRAM, NAND flash memory, and many other key memory modules. Continuously rising demand for memory technology has helped Micron emerge as one of Wall Street’s most popular companies.
Micron is a top growth pick thanks to its projected earnings and revenue growth rates of 132% and 46%, respectively, this year. Investors have grown concerned that the cycle might be over for memory companies, but Micron has consistently maintained a strong outlook and has pointed to new, secular trends as core sources for its growth.
The firm will report quarterly earnings next week, and things are looking bullish ahead of the report. In just the past 30 days, the Zacks Consensus Estimate for the period has added 28 cents—meaning that analysts have grown more optimistic about the quarter recently. Micron is now expected to post EPS growth of 94% for the period.
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