By Philip van Doorn
As we approach the end of a year and the beginning of another, it’s wise to review a winning industry with a built-in advantage: semiconductors.
Chipmakers enjoy unprecedented demand for their products and pricing power during a time of supply constraints. They are primed for growth as bottlenecks subside in 2022 and beyond.
Below is a list of 20 stocks expected to rise the most over the next year, starting from an expanded list of semiconductor makers and companies that produce equipment used by chipmakers.
Semiconductors outperform the Nasdaq-100
The stock-market benchmark for semiconductors and related equipment makers is the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX -2.46% , which is tracked by the iShares Semiconductor ETF /zigman2/quotes/209255350/composite SOXX -2.44% . The exchange-traded fund holds all 30 stocks in the index, weighted by market capitalization.
That means Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -4.40% , with a market cap of $755 billion, is the top holding. Nvidia currently makes up 9.5% of the SOXX portfolio. However, the weighting of any stock is is capped at 8% when the exchange-traded fund is rebalanced quarterly.
Many investors who wish to “go heavy” on the information technology sector hold shares of the Invesco QQQ Trust /zigman2/quotes/208575548/composite QQQ -2.13% , which tracks the Nasdaq-100 Index /zigman2/quotes/210598364/realtime NDX -2.20% , itself made up of the 100 largest non-financial stocks in the full Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -2.35% .
Here’s how SOXX has performed against QQQ and the SPDR S&P 500 ETF Trust /zigman2/quotes/209901640/composite SPY -0.76% over the past 10 years, with dividends reinvested:
Strong growth ahead
Here are consensus sales-per-share estimates through 2023 for the three ETFs, with expected growth rates for next year and expected two-year compound annual growth rates (CAGR):
|ETF||Ticker||Estimated sales per share – 2021||Estimated sales per share – 2022||Estimated sales per share – 2023||Expected sales growth – 2022||Expected two-year sales CAGR|
|iShares Semiconductor ETF||/zigman2/quotes/209255350/composite SOXX||$78.18||$87.18||$95.36||11.5%||10.4%|
|Invesco QQQ Trust||/zigman2/quotes/208575548/composite QQQ||$71.69||$79.42||$86.98||10.8%||10.1%|
|SPDR S&P 500 ETF Trust||/zigman2/quotes/209901640/composite SPY||$1,557.42||$1,668.50||$1,758.66||7.1%||6.3%|
Both the SOXX and QQQ groups are expected to achieve much better sales growth than the broad market over the next two years.
Wall Street’s favorite semiconductor stocks
Your best way to invest in semiconductors may be SOXX, with its diversification and some exposure to American depositary receipts of non-U.S. companies, such as Taiwan Semiconductor Manufacturing Co. /zigman2/quotes/204359850/composite TSM -3.04% .
But some investors want exposure to individual stocks as they shoot for big gains. Nvidia was up 132% for 2021 through Dec. 10.
We began our semiconductor stock screen with the SOXX 30 and broadened the list by adding all companies in the S&P Composite 1500 Index /zigman2/quotes/210600453/delayed XX:SP1500 -0.84% (made up of the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.81% , the S&P 400 Mid Cap Index /zigman2/quotes/219506813/composite MID -3.12% and the S&P 600 Small Cap Index /zigman2/quotes/210599868/delayed SML -1.11% ) in the “Semiconductors and Semiconductor Equipment” Global Industrial Classification Standard (GICS) industry group.
That brought the initial list up to 58 companies, including three well-known makers of equipment used in solar power systems: Enphase Energy Inc. /zigman2/quotes/207948472/composite ENPH -4.15% , First Solar Inc. /zigman2/quotes/209356097/composite FSLR -2.23% and SolarEdge Technologies Inc. /zigman2/quotes/207754270/composite SEDG -2.89% .
We looked within the S&P Composite 1500 because it screens-out newer companies that haven’t achieved consistent profitability. Standard & Poor’s criteria for initial inclusion in the index includes positive earnings for the most recent quarter and for the sum of the most recent four quarters.
Starting with our list of 58 semiconductor companies, there are 54 covered by at least five analysts polled by FactSet, and 48 of those have majority “buy” or equivalent ratings. To be more selective, there are 37 companies with at least two-thirds “buy” ratings.
Among those 37, here are the 25 that analysts expect to rise the most over the next year:
|Company||Ticker||Closing price – Dec. 13||Consensus price target||Implied 12-month upside potential||Share “buy” ratings|
|Universal Display Corp.||/zigman2/quotes/204221853/composite OLED||$157.62||$232.58||48%||71%|
|Azenta Inc.||/zigman2/quotes/200082753/composite AZTA||$102.51||$144.60||41%||83%|
|CEVA Inc.||/zigman2/quotes/205212887/composite CEVA||$43.86||$61.67||41%||83%|
|MKS Instruments Inc.||/zigman2/quotes/208573663/composite MKSI||$161.37||$213.20||32%||82%|
|Power Integrations Inc.||/zigman2/quotes/202936222/composite POWI||$87.82||$115.83||32%||67%|
|Ultra Clean Holdings Inc.||/zigman2/quotes/208969279/composite UCTT||$55.63||$72.58||30%||100%|
|Taiwan Semiconductor Manufacturing Co. Ltd. ADR||/zigman2/quotes/204359850/composite TSM||$119.13||$153.01||28%||90%|
|Kulicke & Soffa Industries Inc.||/zigman2/quotes/200795669/composite KLIC||$66.41||$83.80||26%||80%|
|ASE Technology Holding Co. Ltd. ADR||/zigman2/quotes/205693818/composite ASX||$7.45||$9.30||25%||70%|
|Enphase Energy Inc.||/zigman2/quotes/207948472/composite ENPH||$215.02||$263.96||23%||68%|
|ASML Holding NV ADR||/zigman2/quotes/210293876/composite ASML||$781.84||$952.60||22%||76%|
|United Microelectronics Corp. ADR||/zigman2/quotes/207234499/composite UMC||$11.33||$13.77||22%||82%|
|Cohu Inc.||/zigman2/quotes/209891788/composite COHU||$35.63||$42.89||20%||78%|
|Monolithic Power Systems Inc.||/zigman2/quotes/204177258/composite MPWR||$503.41||$603.29||20%||69%|
|Axcelis Technologies Inc.||/zigman2/quotes/208663939/composite ACLS||$66.00||$78.33||19%||100%|
|Smart Global Holdings Inc.||/zigman2/quotes/208088387/composite SGH||$61.15||$72.00||18%||100%|
|Cirrus Logic Inc.||/zigman2/quotes/208789077/composite CRUS||$90.47||$106.36||18%||77%|
|Onto Innovation Inc.||/zigman2/quotes/208003296/composite ONTO||$92.29||$107.00||16%||100%|
|Micron Technology Inc.||/zigman2/quotes/205710729/composite MU||$85.54||$98.15||15%||75%|
|SiTime Corp.||/zigman2/quotes/215091577/composite SITM||$287.60||$327.67||14%||100%|
|Qualcomm Inc.||/zigman2/quotes/206679220/composite QCOM||$183.88||$208.54||13%||68%|
|Analog Devices Inc.||/zigman2/quotes/201631938/composite ADI||$183.43||$207.52||13%||78%|
|Nvidia Corp.||/zigman2/quotes/200467500/composite NVDA||$301.98||$340.85||13%||81%|
|FormFactor Inc.||/zigman2/quotes/201007636/composite FORM||$43.12||$48.63||13%||88%|
|Marvell Technology Inc.||/zigman2/quotes/200053236/composite MRVL||$89.02||$100.28||13%||87%|
Any stock screen is limited, but can help you begin your own research. Click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.
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