Semiconductor-related industries have been doing SO good in 2017 that you’d think most of the profits have been made. Yet our “Top Ranked Growth Stocks on the Move” premium screen still has several chip companies with room to grow.
So what is this screen all about? The parameters of this list include many of Zacks’ best investment tools. Zacks Rank #1s and #2s? Check. Top 50% of the Zacks Industry Rank? Check. Zacks Growth Style Scores of As and Bs? Check. Plus, it also uses average broker ratings, positive surprises, favorable valuations and positive price momentum to round out its list.
Below are three semiconductor-related companies from the list that are worth a look.
Applied Materials (AMAT - Free Report) :
A company that outperforms its industry is always worth noting, but it’s all the more impressive when that industry is Semiconductor Equipment – Wafer Fabrication. The space is currently seventh out of 256 spots in the Zacks Industry Rank, which places it in the top 3%. Over the past year, it has returned more than 65%. But Applied Materials (AMAT - Free Report) has soared more than 90% in that time, so it is really making the most out of its prosperous “neighborhood”.
AMAT has beaten the Zacks Consensus Estimate for 14 straight quarters. In fact, the only miss was back in August of 2013. In mid February, the company beat the Zacks Consensus Estimate by 1.5% while revenues jumped more than 45% year over year to $3.28 billion. New orders were up 86% to $4.24 billion. The company won’t report again until mid-way through May, but it offered fiscal second quarter guidance ranges with midpoints that suggest revenue growth of 44% year over year and adjusted EPS growth of 124%.
The long-term growth prospects for its silicon and display segments are encouraging for the future, especially since the strength of its industry is likely to continue. AMAT is a global leader in semiconductor equipment sales and, therefore, has a strong pipeline of enabling technologies and a very solid balance sheet. Analysts like what they see and boosted expectations after its latest report. Over the last three months, the Zacks Consensus Estimate for this fiscal year (ending October 2017) grew 10% to $2.65, while next fiscal year (ending October 2018) advanced 11.1% to $2.80.
Ultra Clean Holdings (UCTT - Free Report) :
Shares of Ultra Clean Holdings (UCTT - Free Report) soared by 13% yesterday in the wake of another strong quarterly performance for this semiconductor equipment services company. The stock continues to capitalize on the “extraordinary” demand for anything that has to do with semis. UCTT is part of the Electronics – Manufacturing Machinery space, which is ranked 15th out of 256 industries. In other words, it’s in the top 6%.
On Wednesday, the company reported adjusted earnings per share of 47 cents for the first quarter, which was nearly 12% better than the Zacks Consensus Estimate at 42 cents. UCTT has now beaten expectations in 11 of the past 12 quarters, including the last four with an average surprise of practically 28%. Revenue of $204.6 million was 82.3% better than last year and also beat Zacks expectations. Semiconductor revenue increased 80.4% from last year and 22.4% sequentially. Looking toward the second quarter, UCTT expects earnings between 49 cents and 55 cents with revenue at $210 million to $220 million.
In just the past seven trading days, the Zacks Consensus Estimate for 2017 has climbed 2.5% to $1.21 per share, while 2018 is up 5.5% in that time to $1.34. So for the moment, analysts expect next year to improve 10.7% over this year. We may see even more analyst activity in the days ahead following its solid quarterly performance. Over the past three months, the Zacks Consensus Estimate has increased by 44% for this year and 39.6% for next.
Microchip Technology (MCHP - Free Report)
The semiconductor – analog & mixed area is another chip industry with a high position on the Zacks Industry Rank. Specifically, it is in the top 11% with the 28th spot out of 256 industries. It’s year-to-date (YTD) return is approximately 9.83%. That’s a respectable performance so far in 2017. But it’s not as good as Microchip Technology (MCHP - Free Report) , which is up approximately 19.6% YTD with an expanding product portfolio that suggests it can continue to outperform its industry and the overall market for the foreseeable future.
MCHP is one of the fastest-growing providers of microcontrollers, specifically of the 16-bit and 32-bit types. Microcontrollers accounted for 63.1% of revenue in its fiscal third quarter, where net sales of $881.2 million soared by nearly 60% year over year. Earnings per share reached $1, or 23.5% better than the Zacks Consensus Estimate of only 81 cents. MCHP is less than a dollar from its 52-week high of $77.32, and seems all set to move past that number given solid performances like this one.
Over the past 30 days, the Zacks Consensus Estimate for the year ended in March is up 13.2% to $3.60. Earnings estimates for the fiscal year ending March 2018 are up 16.8% to $4.24, which suggests a year-over-year improvement of more than 17.8%. MCHP is not expected to report again until after the close on May 9th. We are expecting 99 cents per share.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market.
See these critical buys and sells free >>