Semiconductors are the core infrastructure powering the Information Age. The way we live and work is also changing with AI, which is creating secular demand for more powerful chips. As a result, the industry has seen solid stock price performance as it has recorded a six-month gain of 38.1%. Investing here would have been wise - at the same time, the S&P 500 was flat.
Regardless of these results, investors must exercise caution as the rapid pace of innovation can easily turn today’s winners into tomorrow’s losers. Keeping that in mind, here is one resilient semiconductor stock at the top of our wish list and two we’re swiping left on.
Two Semiconductor Stocks to Sell:
Universal Display (OLED)
Market Cap: $4.50 billion
Serving major consumer electronics manufacturers, Universal Display (NASDAQ: OLED) is a provider of organic light emitting diode (OLED) technologies used in display and lighting applications.
Why Does OLED Fall Short?
- Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Universal Display’s stock price of $95.58 implies a valuation ratio of 19.5x forward P/E. If you’re considering OLED for your portfolio, see our FREE research report to learn more.
Magnachip (MX)
Market Cap: $103.6 million
With its technology found in common consumer electronics such as TVs and smartphones, Magnachip Semiconductor (NYSE: MX) is a provider of analog and mixed-signal semiconductors.
Why Do We Avoid MX?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 18.8% annually over the last five years
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 42 percentage points
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $2.88 per share, Magnachip trades at 0.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MX.
One Semiconductor Stock to Watch:
Seagate (STX)
Market Cap: $89.34 billion
One of two remaining major hard drive manufacturers after decades of industry consolidation, Seagate (NASDAQ: STX) manufactures hard disk drives and solid state drives that store data in data centers, cloud systems, and consumer devices.
Why Do We Like STX?
- Annual revenue growth of 24.7% over the last two years was superb and indicates its market share increased during this cycle
- Demand will likely accelerate over the next 12 months as its forecasted revenue growth of 28.2% is above its two-year trend
- Efficiency rose over the last five years as its Operating margin increased by 8 percentage points
Seagate is trading at $400.52 per share, or 23x forward P/E. Is now a good time to buy? See for yourself in our full research report, it’s free.
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