A persistent semiconductor chip supply shortage has hampered output in various industries—from automobiles to electronics. However, massive investments by governments and businesses to scale up production should help the semiconductor industry meet the growing demand. According to the World Semiconductor Trade Statistics (WSTS), global semiconductor sales for September 2021 were $48.3 billion, up 27.6% from September 2020 and 2.2% from August 2021.
In addition, Commerce Secretary Gina Raimondo has urged the House of Representatives to adopt legislation supporting U.S. semiconductor chip manufacturing as soon as possible to avoid future supply disruptions and to catch up with the growing demands.
Keeping this backdrop and the long-term trends in mind, we believe fundamentally sound semiconductor stocks Amkor Technology Inc. (AMKR) and Silicon Motion Technology Corporation (SIMO) could be solid picks now. Though these stocks have witnessed significant price declines recently, we think they are well-positioned to gain substantially in the coming months.
Click here to checkout our Semiconductor Industry Report for 2021
Amkor Technology Inc. (AMKR)
AMKR in Tempe, Ariz., outsources semiconductor packaging and testing in the United States, Japan, Europe, the Middle East, Africa, and the rest of Asia Pacific. It primarily services fabless semiconductor businesses, integrated device makers, original equipment manufacturers, and contract foundries.
This month, AMKR announced plans to construct a state-of-the-art smart plant in Bac Ninh, Vietnam. According to the company, this is a long-term strategic investment in regional diversification and plant capacity development that supports its commitment to dependable supply chain solutions for our clients.
AMKR's net sales increased 24.1% year-over-year to $1.68 billion in the third quarter, ended September 30, 2021. Its operating income grew 65.9% from its year-ago value to $211.46 million. And the company's net income surged 96.3% from the prior-year quarter to $180.85 million, while its EPS increased 94.7% year-over-year to $0.74 over this period.
AMKR's EPS is expected to grow 71.4% year-over-year to $2.4 in its fiscal year 2021. Analysts expect AMKR's revenue to increase 20% year-over-year to $6.06 billion in the current year. The stock has gained 46.3% in price over the past year and 43% so far this year. However, it has lost 22.8% over the past three months.
AMKR's POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
AMKR has also been rated an A grade for Value and a B for Growth and Momentum. Within the A-rated Semiconductor & Wireless Chip industry, it is ranked #34 of 101 stocks. To see additional POWR Ratings for Stability, Quality, and Sentiment for AMKR, click here.
Silicon Motion Technology Corporation (SIMO)
Headquartered in Hong Kong, SIMO creates, develops, and sells NAND flash controllers for solid-state storage devices. It provides SSDs for PCs and other devices and eMMC and UFS mobile embedded storage for smartphones and IoT devices. It sells SMI controllers, Shannon Systems enterprise-grade SSDs, Ferri SSD, and Ferri-eMMC single-chip industrial-grade SSDs.
In August, SIMO unveiled its SM2320, a single-chip high-performance, low-power, cost-effective external portable SSD solution. The new SM2320 controller solution is built with integrated hardware and software and high-level security features to meet the needs of both gaming console and laptop users.
For the third quarter, ended September 30, 2021, SIMO's net sales increased 101.7% from its year-ago value to $254.24 million. Its operating income grew 166.6% year-over-year to $68.89 million. The company's net income surged 128.4% from the prior-year quarter to $55.42 million, while its EPS increased 125.7% from the year-ago value to $1.58.
The company's EPS is expected to grow 86.7% year-over-year to $ 6.05 in the current year. In addition, its revenue is projected to increase 70.3% in the current year and 14.8% next year. SIMO's stock has gained 74% in price over the past year and 43.4% year-to-date. The stock has lost 6% over the past three months.
SIMO's strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. SIMO also has an A grade for Value, Growth, and Momentum. The stock is ranked #5 in the Semiconductor & Wireless Chip industry.
Beyond the POWR Ratings grades I have just highlighted, you can see the SIMO ratings for Sentiment, Stability, and Quality.
Note that SIMO is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Click here to checkout our Semiconductor Industry Report for 2021
AMKR shares were trading at $22.90 per share on Wednesday morning, up $1.34 (+6.22%). Year-to-date, AMKR has gained 52.61%, versus a 24.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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