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Don't Fear China: 5 Tech Stocks Headed for a Strong 2017
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Technology stocks have taken a thumping since the election results, and CEOs are waiting to see where the new policies take them. There is particular concern about companies exposed to China and most are waiting for a Chinese reaction to President-elect Trump.
China hasn’t reacted too much so far. The only occasion arose as a result of the Taiwanese President making a congratulatory call to Trump that as it turns out, may have been pre-arranged. Taiwan has broken away from the mainland and has separate elections, but China views the region as strategically important and an “integral part of China.” The U.S. has always kept China happy giving rise to the “one China” rule.
As a result of the call, the Chinese Foreign ministry has communicated its displeasure to the U.S. saying that the rule was the “political foundation for China-U.S. relations.” It did, however, blame Taiwan for the event, leaving the President-elect a way out in case he chooses to use it.
Sino-U.S. relations haven’t been going as planned, but it isn’t clear what’s changed to warrant the change of tactics. The U.S. traded jobs for growth and China continues to restrict that growth by protectionist laws. So maybe the move is designed to open the door to fresh deal-making.
Whatever the case, it’s important to note that China and the U.S. are more or less equally dependent for trade, so it may not be in China's interest to enter a trade war. Note that American companies selling to China generally manufacture in China, so severing ties would result in job losses.
As far as technology companies are concerned, not all are equally positioned in China or dependent on it. Some, like Facebook , have not really been let in; some like Google are at the door and some like Apple (AAPL - Free Report) are hugely dependent. Then there are the semiconductor and other component manufacturers that will likely not be affected.
Despite the government’s tremendous efforts over the past decade, the country’s consumption of semiconductors well exceeds its own output. And that’s partly the reason I’ve included some semiconductor stocks in my picks today. The other part involves great numbers related to past performance and solid expected future growth along with a positive Zacks Rank (the complete list of today’s Zacks #1 Rank (Strong Buy) stocks is here) and a VGM Score of A or B.
Amkor Technologies is a provider of back-end (i.e. packaging and test) semiconductor manufacturing services. Its capabilities include wafer bump, wafer probe, wafer backgrind, package design, packaging (using wirebond, flip chip, copper clip and other interconnect technologies), and test and drop shipment services for optimal electrical, mechanical and thermal performance of semiconductors. Its customers include integrated device manufacturers (IDMs), fabless semiconductor companies and contract foundries.
The company has operations spread across six countries where the bulk of electronics manufacturing takes place. It counts Qualcomm and Toshiba as its largest customers, each of which contributes more than 10% of its revenue.
Amkor has increased its manufacturing footprint in China (because of strong regional demand and low cost) while reducing and consolidating its operations in Japan. Moreover, it also bought a facility in Malaysia from Toshiba to better serve automotive and industrial customers and the investment seems to be paying off.
Auto revenue growth was very strong in the last quarter. Another area of strength was from the K4 manufacturing plant in Gwangju Korea, which makes its system-in-package (SiP) modules.
Zacks Rank #1
VGM Score A
Last 4-quarter average EPS Surprise 62.50%
Estimated EPS growth this year (ending in December) 55.88%, next year 50.9%
Brooks Automation offers automation tools and services primarily for the semiconductor capital equipment market and sample management market for life sciences.
The company operates in three segments. The Products segment offers tools to enable improved throughput and yield in controlled operating environments. The Services segment, which is partly dependent on the products segment, offers installation, support, diagnostic and repair services. The Life Sciences segment takes care of automated cold sample storage, equipment for sample preparation and handling, consumables and parts, and support services.
The company has been restructuring its business to trim underperforming areas and build capabilities in the life sciences segment, where there is significant growth opportunity. On the semiconductor side, it is a beneficiary of 10nm tooling and 3D NAND buildout. On the life sciences side, the past year has been something of a transition period during which time it moved from losses to breakeven and then to profits in the last quarter. Things are only expected to get better.
Zacks Rank #1
VGM Score B
Last 4-quarter average EPS Surprise 111.19%
Estimated EPS growth this year (ending in September) 74.47%
Micron is one of the leading providers of semiconductor memory products like dynamic random-access memory (DRAM), negative-AND (NAND) Flash and NOR Flash, on which are built solid-state drives, modules, multi-chip packages and other system solutions.
Its Compute and Networking segment caters to compute, networking, graphics and cloud server markets; the Mobile Business segment is focused on smartphone, tablet and other mobile-device markets; the storage segment takes care of enterprise, client, cloud and removable storage markets and also includes the Intel/Micron Flash Technology (IMFT) JV; and the Embedded Business segment that serves the automotive, industrial, connected home and consumer electronics markets.
Micron continues to see strong demand for its trailing edge chips even as it qualifies those at the 1X nodes. The company is of course a beneficiary of the industry transition to 3D NAND and DDR4 memory. In fact management has stated that DDR4 shipments crossed over DDR3 in some divisions of its compute and networking segment in the last quarter. The graphics business is benefiting from NVIDIA’s GDDR5 and 5-X products.
China is a growing driver of the mobile business as Chinese handset makers race to catch up with Apple and Samsung. The embedded business is being driven by the automotive market, which is increasingly growing into the computer of the future as Intel’s Krzanich pointed out.
Bit costs should also decline as Micron moves to lower geometries although there will be the usual yield issues at first.
On Dec 7, Micron closed the acquisition of a 67% stake in Taiwanese DRAM maker Inotera, in which it already had a 33% stake. Inotera was initially a JV between Infineon and Nanya before Micron bought Infineon’s 33% stake and became its sole customer. Micron was Inotera’s sole customer and the 100% ownership will immediately add to its DRAM gross margin, earnings per share and cash flow.
Zacks Rank #2
VGM Score B
Last 4-quarter average EPS Surprise 31.51%
Estimated EPS growth this year (ending in August) 2400%, next year 35.3%
TTM Technologies manufactures printed circuit boards (PCBs) at its 30 specialized facilities in the U.S., China, Canada and Mexico. The company focuses on PCBs for routers, switches, computer memory modules and communications infrastructure equipment used in networking/communications infrastructure, smartphone and touchscreen tablet, aerospace and defense, computing, and industrial/medical industries.
China is the largest consumer of PCBs in the world (47% of global production) with PCBs being a product category 91% of which is made in Asia (primarily China) according to Prismark Research (as quoted by management). The company has extensive operations in China and the U.S. and it is pulling out of Mexico. China accounted for a quarter of the company’s revenues in 2015.
Zacks Rank #1
VGM Score A
Last 4-quarter average EPS Surprise 29.01%
Estimated EPS growth this year (ending in December) 528.57%, next year 15.0%
Finisar offers fiber optic subsystems (transmitters, receivers, transceivers, transponders and active optical cables) and test and monitoring systems forming a part of data communication and telecommunication networks. Used in local area networks (LANs), storage area networks (SANs) and metropolitan access networks (MANs), the company’s products constitute the optoelectronic interface interconnecting electronic equipment like switches, routers and servers used in these networks. Therefore, along with semiconductors, they enable transmitting and receiving of digital signals over fiber optic cable at various speeds.
The company has significant operations in China and the country also consumes about a quarter of its output. There should be significant pickup in sales in 2017 second quarter onward from a new product, for which management says they already have initial orders.
Zacks Rank #2
VGM Score A
Last 4-quarter average EPS Surprise 35.74%
Estimated EPS growth this year (ending in April) 146.79%, next year 18.4%
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Don't Fear China: 5 Tech Stocks Headed for a Strong 2017
Technology stocks have taken a thumping since the election results, and CEOs are waiting to see where the new policies take them. There is particular concern about companies exposed to China and most are waiting for a Chinese reaction to President-elect Trump.
China hasn’t reacted too much so far. The only occasion arose as a result of the Taiwanese President making a congratulatory call to Trump that as it turns out, may have been pre-arranged. Taiwan has broken away from the mainland and has separate elections, but China views the region as strategically important and an “integral part of China.” The U.S. has always kept China happy giving rise to the “one China” rule.
As a result of the call, the Chinese Foreign ministry has communicated its displeasure to the U.S. saying that the rule was the “political foundation for China-U.S. relations.” It did, however, blame Taiwan for the event, leaving the President-elect a way out in case he chooses to use it.
Sino-U.S. relations haven’t been going as planned, but it isn’t clear what’s changed to warrant the change of tactics. The U.S. traded jobs for growth and China continues to restrict that growth by protectionist laws. So maybe the move is designed to open the door to fresh deal-making.
Whatever the case, it’s important to note that China and the U.S. are more or less equally dependent for trade, so it may not be in China's interest to enter a trade war. Note that American companies selling to China generally manufacture in China, so severing ties would result in job losses.
As far as technology companies are concerned, not all are equally positioned in China or dependent on it. Some, like Facebook , have not really been let in; some like Google are at the door and some like Apple (AAPL - Free Report) are hugely dependent. Then there are the semiconductor and other component manufacturers that will likely not be affected.
Despite the government’s tremendous efforts over the past decade, the country’s consumption of semiconductors well exceeds its own output. And that’s partly the reason I’ve included some semiconductor stocks in my picks today. The other part involves great numbers related to past performance and solid expected future growth along with a positive Zacks Rank (the complete list of today’s Zacks #1 Rank (Strong Buy) stocks is here) and a VGM Score of A or B.
Amkor Technology (AMKR - Free Report)
Amkor Technologies is a provider of back-end (i.e. packaging and test) semiconductor manufacturing services. Its capabilities include wafer bump, wafer probe, wafer backgrind, package design, packaging (using wirebond, flip chip, copper clip and other interconnect technologies), and test and drop shipment services for optimal electrical, mechanical and thermal performance of semiconductors. Its customers include integrated device manufacturers (IDMs), fabless semiconductor companies and contract foundries.
The company has operations spread across six countries where the bulk of electronics manufacturing takes place. It counts Qualcomm and Toshiba as its largest customers, each of which contributes more than 10% of its revenue.
Amkor has increased its manufacturing footprint in China (because of strong regional demand and low cost) while reducing and consolidating its operations in Japan. Moreover, it also bought a facility in Malaysia from Toshiba to better serve automotive and industrial customers and the investment seems to be paying off.
Auto revenue growth was very strong in the last quarter. Another area of strength was from the K4 manufacturing plant in Gwangju Korea, which makes its system-in-package (SiP) modules.
Zacks Rank #1
VGM Score A
Last 4-quarter average EPS Surprise 62.50%
Estimated EPS growth this year (ending in December) 55.88%, next year 50.9%
P/E this fiscal year 21.58 (Industry 55.5)
P/E 2017 14.3
AMKOR TECH INC Price
AMKOR TECH INC Price | AMKOR TECH INC Quote
Brooks Automation
Brooks Automation offers automation tools and services primarily for the semiconductor capital equipment market and sample management market for life sciences.
The company operates in three segments. The Products segment offers tools to enable improved throughput and yield in controlled operating environments. The Services segment, which is partly dependent on the products segment, offers installation, support, diagnostic and repair services. The Life Sciences segment takes care of automated cold sample storage, equipment for sample preparation and handling, consumables and parts, and support services.
The company has been restructuring its business to trim underperforming areas and build capabilities in the life sciences segment, where there is significant growth opportunity. On the semiconductor side, it is a beneficiary of 10nm tooling and 3D NAND buildout. On the life sciences side, the past year has been something of a transition period during which time it moved from losses to breakeven and then to profits in the last quarter. Things are only expected to get better.
Zacks Rank #1
VGM Score B
Last 4-quarter average EPS Surprise 111.19%
Estimated EPS growth this year (ending in September) 74.47%
P/E this fiscal year 20.26 (Industry 21.10)
P/E 2017 16.95
BROOKS AUTOMATN Price
BROOKS AUTOMATN Price | BROOKS AUTOMATN Quote
Micron Technology (MU - Free Report)
Micron is one of the leading providers of semiconductor memory products like dynamic random-access memory (DRAM), negative-AND (NAND) Flash and NOR Flash, on which are built solid-state drives, modules, multi-chip packages and other system solutions.
Its Compute and Networking segment caters to compute, networking, graphics and cloud server markets; the Mobile Business segment is focused on smartphone, tablet and other mobile-device markets; the storage segment takes care of enterprise, client, cloud and removable storage markets and also includes the Intel/Micron Flash Technology (IMFT) JV; and the Embedded Business segment that serves the automotive, industrial, connected home and consumer electronics markets.
Micron continues to see strong demand for its trailing edge chips even as it qualifies those at the 1X nodes. The company is of course a beneficiary of the industry transition to 3D NAND and DDR4 memory. In fact management has stated that DDR4 shipments crossed over DDR3 in some divisions of its compute and networking segment in the last quarter. The graphics business is benefiting from NVIDIA’s GDDR5 and 5-X products.
China is a growing driver of the mobile business as Chinese handset makers race to catch up with Apple and Samsung. The embedded business is being driven by the automotive market, which is increasingly growing into the computer of the future as Intel’s Krzanich pointed out.
Bit costs should also decline as Micron moves to lower geometries although there will be the usual yield issues at first.
On Dec 7, Micron closed the acquisition of a 67% stake in Taiwanese DRAM maker Inotera, in which it already had a 33% stake. Inotera was initially a JV between Infineon and Nanya before Micron bought Infineon’s 33% stake and became its sole customer. Micron was Inotera’s sole customer and the 100% ownership will immediately add to its DRAM gross margin, earnings per share and cash flow.
Zacks Rank #2
VGM Score B
Last 4-quarter average EPS Surprise 31.51%
Estimated EPS growth this year (ending in August) 2400%, next year 35.3%
P/E this fiscal year 13.63 (Industry 13.60)
P/E 2017 10.08
MICRON TECH Price
MICRON TECH Price | MICRON TECH Quote
TTM Technologies (TTMI - Free Report)
TTM Technologies manufactures printed circuit boards (PCBs) at its 30 specialized facilities in the U.S., China, Canada and Mexico. The company focuses on PCBs for routers, switches, computer memory modules and communications infrastructure equipment used in networking/communications infrastructure, smartphone and touchscreen tablet, aerospace and defense, computing, and industrial/medical industries.
China is the largest consumer of PCBs in the world (47% of global production) with PCBs being a product category 91% of which is made in Asia (primarily China) according to Prismark Research (as quoted by management). The company has extensive operations in China and the U.S. and it is pulling out of Mexico. China accounted for a quarter of the company’s revenues in 2015.
Zacks Rank #1
VGM Score A
Last 4-quarter average EPS Surprise 29.01%
Estimated EPS growth this year (ending in December) 528.57%, next year 15.0%
P/E this fiscal year 11.21 (Industry 12.90)
P/E 2017 9.75
TTM TECHNOLOGIE Price
TTM TECHNOLOGIE Price | TTM TECHNOLOGIE Quote
Finisar Corp
Finisar offers fiber optic subsystems (transmitters, receivers, transceivers, transponders and active optical cables) and test and monitoring systems forming a part of data communication and telecommunication networks. Used in local area networks (LANs), storage area networks (SANs) and metropolitan access networks (MANs), the company’s products constitute the optoelectronic interface interconnecting electronic equipment like switches, routers and servers used in these networks. Therefore, along with semiconductors, they enable transmitting and receiving of digital signals over fiber optic cable at various speeds.
The company has significant operations in China and the country also consumes about a quarter of its output. There should be significant pickup in sales in 2017 second quarter onward from a new product, for which management says they already have initial orders.
Zacks Rank #2
VGM Score A
Last 4-quarter average EPS Surprise 35.74%
Estimated EPS growth this year (ending in April) 146.79%, next year 18.4%
P/E this fiscal year 22.92 (Industry 8.00)
P/E 2017 19.27
FINISAR CORP Price
FINISAR CORP Price | FINISAR CORP Quote
Zacks' Best Investment Ideas for Long-Term Profit
Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>