The semiconductor industry, which is among the 11 sub-industries in the broader technology sector, has been one of the outperformers so far this year. Notably, iShares PHLX Semiconductor ETF (SOXX Quick QuoteSOXX - Free Report) , which represents semiconductor stocks, has witnessed a year-to-date (YTD) gain of approximately 10.9%, while the Technology Select Sector SPDR ETF (XLK Quick QuoteXLK - Free Report) , which represents the overall technology sector, returned 9.3% YTD.

After a dismal 2015 which witnessed SOXX ETF lose over 3.3%, stocks across the semiconductor landscape rebounded well last year and the momentum is likely to continue this year as well. In 2016, SOXX ETF gained 36.6%, while the XLK ETF returned 12.9%.

Micron Technology Inc. (MU Quick QuoteMU - Free Report) was one of the best performers in the semiconductor space last year. The stock clocked solid returns in 2016 and gained approximately 54.8%, outperforming the Zacks Electronic-Semiconductor industry’s return of about 31.9%. The momentum has continued this year and the stock is up 31.5% so far this year, while the industry has just gained 7.8%.

The main reason behind the optimism surrounding the stock is improving prices for DRAM and NAND chips, which makes investors confident about Micron’s growth. Per various sources, DRAM and NAND prices have improved primarily due to a better product mix optimization and higher-than-expected demand for PCs.

This can be further substantiated by the fact that HP Inc. (HPQ Quick QuoteHPQ - Free Report) , during its latest earnings conference, hinted that there may be a shortage of DRAM and Flash memory chips. Any shortage in supply will escalate prices, thereby boosting Micron’s forthcoming top- and bottom-line results.

The benefit from improved pricing was well reflected in the company’s last three quarterly results wherein it registered tremendous year-over-year growth in the top and the bottom lines.

Furthermore, the company is expected to benefit from strong demand for NAND flash memory chips, which are used in smartphones and tablets. Driven by new tablet products and greater adoption of solid state drive (SSD), total demand in the NAND flash memory industry could surpass manufacturing capacity, leading to a periodic shortage and higher pricing in the near term.

Additionally, we are positive about the company’s strategy of enhancing capabilities through acquisitions which are likely to boost its top-line performance. The acquisition of Inotera in Dec 2016 is estimated to be accretive to Micron’s DRAM gross margin, earnings per share and free cash flow. According to the company, the acquisition will also have some operational benefits, leading to efficient management of investment levels and cadence followed by alignment with global manufacturing operations.

Looking at the improving selling prices for DRAM and strategic initiatives of expanding in the SSD market, we consider that Micron is one such technology stock which is worthy of remaining in investors’ portfolio.

On the valuation front too, the stock looks attractive. The company currently trades at a forward P/E multiple of 12.3x, significantly lower than the Zacks categorized Electronics-Semiconductor industry average of 15.3x. The ratio, which is obtained by dividing a stock’s current market price with its historical or estimated earnings, measures how much an investor needs to shell out per dollar of earnings. Therefore, lower the P/E of a stock, the better for a value investor.

Hence, we believe that there is still much momentum left in this Zacks Rank #1 (Strong Buy) stock, which is quite evident from its VGM Style Score of “B” and long-term earnings growth rate of 10%.

Other Picks in the Industry

The U.S. economy seems to be rebounding as reflected in the recently released improved economic data for GDP, Consumer Confidence Index, unemployment rate and factory activity data. We believe that there are tremendous growth opportunities for semiconductor stocks in the year ahead.

Notably, as per latest predictions from World Semiconductor Trade Statistics (WSTS), semiconductor sales are likely to increase 3% in 2017 and 2% in 2018.

Right now, the semiconductor segment has several promising stocks to choose from. Here we have picked four semiconductor stocks which have performed well in this year so far and have the potential to retain the momentum in the next year as well. They also have a favorable Zacks Rank #1 or #2 (Buy), and VGM Style Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

KLA-Tencor Corporation (KLAC Quick QuoteKLAC - Free Report) is one of the world's leading suppliers of process control and yield management solutions for the semiconductor, and related microelectronics industries. The EPS estimate for the current fiscal has been revised upward to $5.71 from $5.45 per share over the last 30 days. The stock carries a Zacks Rank #2 and has a VGM Style Score “B.”

·         Year-to-date Return: 21.8%

·         Last EPS Surprise: 7.8%

·         Average 4-quarter Surprise: 14.0%

·         Long-term Expected EPS Growth Rate: 21.2%

Applied Materials Inc. (AMAT Quick QuoteAMAT - Free Report) develops, manufactures, markets and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. The EPS estimate for the current fiscal has been revised upward to $2.65 from $2.62 per share over the last 30 days. The stock sports a Zacks Rank #1 and has a VGM Style Score “B.”

·         Year-to-date Return: 20.5%

·         Last EPS Surprise: 1.5%

·         Average 4-quarter Surprise: 3.9%

·         Long-term Expected EPS Growth Rate: 15.5%

ON Semiconductor Corporation (ON Quick QuoteON - Free Report) is a supplier of broadband and power management integrated circuits, and standard semiconductors used in numerous advanced devices ranging from high-speed fiber optic networking equipment to the precise power management functions found in portable electronics. The EPS estimate for 2017 has been revised upward to $1.24 from $1.15 per share over the last 60 days. The stock flaunts a Zacks Rank #1 and has a VGM Style Score “B.”

·         Year-to-date Return: 31.5%

·         Last EPS Surprise: 39.1%

·         Average 4-quarter Surprise: 13.3%

·         Long-term Expected EPS Growth Rate: 14.7%

Taiwan Semiconductor Manufacturer Co. Ltd. (TSM Quick QuoteTSM - Free Report) is the world's largest dedicated integrated circuit foundry. The EPS estimate for the current year has been revised upward to $2.27 from $2.23 per share over the last 30 days. The stock carries a Zacks Rank #2 and has a VGM Style Score “A.”

·         Year-to-date Return: 15.4%

·         Last EPS Surprise: 5.2%

·         Average 4-quarter Surprise: 3.4%

·         Long-term Expected EPS Growth Rate: 15.0%

Looking Ahead

The above-mentioned stocks have grabbed the spotlight with striking performances supported by solid earnings results and strong growth projections. With this in mind, we believe investing in these stocks would yield robust returns for your portfolio in the near term.

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