Intel (INTC - Analyst Report) investors must be disappointed after the chip giant announced weak results and guidance last week. But Intel’s announcement was related to its mobile push and the semiconductor market itself has strengthened for nine straight quarters, according to the last-reported numbers published by the Semiconductor Industry Association.
So let’s take a look at some of the stocks that should do well this year -
First on our list is Cirrus Logic (CRUS - Snapshot Report), which is a fables semiconductor company developing analog and mixed signal chips for consumer and industrial markets. Since Apple (AAPL - Analyst Report) is a major customer, the company should benefit from Apple’s recent agreements with China Mobile (the largest carrier in China) and Japan’s NTT DoCoMo last year. These partnerships greatly increase Apple’s reach in important Asian markets, so there should be a corresponding jump in sales. German company Dialog Semiconductor, recently reported a 31% jump in revenue from the year-ago quarter, which it attributed to strong sales in its Mobile Systems segment. Dialog generates 70% of its revenue from Apple. So there’s a good chance that Cirrus will benefit similarly. Insiders appear to be building position, which is another positive.
Not convinced? Take a look at these numbers. Cirrus Logic shares have dropped 31.6% over the past year and its current P/E is just 8.55X compared to 16.90X for the S&P 500. Despite the fact that its earnings are expected to grow 15.0% over the next five years, PEG remains reasonable at 0.57. The company has consistently beaten estimates in the last four quarters, with the average positive surprise at 21.2%. Estimates for 2014 have jumped 28 cents, or 13.7% over the last 90 days. Cirrus reports results next week.
The second is Broadcom Corp (BRCM - Analyst Report), a semiconductor company making chips for wireless and wireline communications markets. The current enthusiasm regarding Broadcom shares is because of its new ARM-based SoC with integrated LTE modem for the low-end mobile market and the fact that it has already won over Samsung as a customer. A slim modem is also in the works, which could, if successful, put it in the same league as Qualcomm (QCOM - Analyst Report) or Intel.
Broadcom also has some interesting numbers. The company’s current P/E of 17.29X is better than the peer group average of 24.40X. While PEG is high at 1.42, it’s better than the industry average of 2.22. Broadcom has also been beating estimates over the past year, with the preceding four-quarter surprise averaging 10.5%. Forward estimates will likely be revised to give effect to the Samsung win, but even at these levels, expected earnings growth of 12.1% over the next five years is higher than the industry average of 11.0%.
Next is Marvell Technology Group (MRVL - Snapshot Report), which also uses ARM designs to make analog, digital and mixed-signal semiconductors for communications and computing markets. Marvell now has a quad-core integrated SoC that will ship in the first half of the year. It has also signed up a number of important Chinese customers. Marvell is also a leading producer of SSD controllers, which is one of the emerging storage segments.
Marvell’s prospects for the year are reflected in the estimate revision trend: 2014 estimates jumped 10 cents, or 16.7% with estimates for 2015 moving up 10 cents, or 15.1% in the last 90 days. The earnings surprise history averages 48.1% in the preceding four quarters, which is also encouraging.
Therefore, this may be a good time to buy Cirrus, Broadcom and/or Marvell, all of which carry a Zacks Rank #1 (Strong Buy).