By Emily Bary
David Paul Morris/Bloomberg
Analysts at Deutsche Bank say it’s time to give a fresh look to shares of Qualcomm and Lam Research, arguing that the stocks have sold off too much amid concerns about the COVID-19 pandemic.
“While the semiconductor sector overall has yet to underperform by a magnitude that yields a meaningfully more attractive opportunity, there are names within the sector that have corrected by a significant amount despite possessing positive attributes,” wrote Deutsche Bank’s Ross Seymore, who said that Qualcomm Inc. /zigman2/quotes/206679220/composite QCOM +3.55% is one of those companies. He upgraded the stock to buy from hold Friday.
Qualcomm’s stock has dropped 23% so far this year, while the PHLX Semiconductor Index /zigman2/quotes/210598361/realtime SOX +2.65% has lost 18%. “We expect this recent underperformance to become future outperformance as China-related headwinds soon become tailwinds, and the timing of Apple’s 5G iPhone launch becomes more certain,” Seymore wrote.
He’s also upbeat about Qualcomm’s competitive standing in 5G handsets, which he said should help the company hold up better than others in the sector during the imminent wave of estimate revisions he expects. Seymore lowered his target price to $85 from $96 in conjunction with the upgrade.
Deutsche Bank analyst Sidney Ho, who covers semiconductor-equipment names for Deutsche Bank, added two other chip-related names to the list of upgrades. He upped his rating on shares of Lam Research Corp. /zigman2/quotes/208077897/composite LRCX +2.57% and Teradyne Inc. /zigman2/quotes/208321188/composite TER +3.81% to buy from hold, writing that the two “fit in the bucket of high-quality names and market leaders that should see their share prices declining less in a down-market and go up first in a market recovery.”
While Ho cut his overall forecasts for wafer-fab equipment (WFE), he likes Lam’s exposure to memory WFE, an area he expects to be relatively more resilient this year. Ho also sees potential for the company to be “opportunistic with share repurchases” due to its strong balance sheet.
As for Teradyne, Ho and his team “see the potential for 5G infrastructure buildout to reaccelerate in China (and potentially in the US)” and argue that “re-engaging with Apple should provide an additional tailwind.”
He raised his price target on Lam’s stock to $300 from $280 and cut his Teradyne target to $68 from $73.
Lam shares have lost 16% so far this year, while Teradyne’s stock had dropped 19%. By comparison, the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.48% has declined 21%.