For much of 2018, bearish sentiment in the semiconductor industry has ratcheted up as some investors have looked to call the top on the chip space’s monumental bull cycle. Nevertheless, plenty of chip stocks look mightily attractive right now, especially those—like Cypress Semiconductor —which should be able to break through cyclical concerns by cashing in on new secular growth trends.

Cypress Semiconductor is a leading provider of high-performance digital and mixed-signal integrated circuits. It makes products designed for the automotive, industrial, home automation and appliances, consumer electronics and medical products industries.

The company has also emerged as a leader in the Internet of Things industry after shelling out $550 million for Broadcom’s IoT business in 2016.  Cypress’ “WICED” IoT platform is part of one of the largest such portfolios in the industry.

This is really the first thing that makes Cypress stick out right now. Sure, the Internet of Things has been one of the key drivers of growth in the semiconductor industry recently, but the number of connected devices worldwide is still set to grow exponentially in coming years, and it does not take much optimism to think that we have only seen the tip of the trend’s iceberg so far.

Moreover, as the extent to which we can or want to connect certain things to the IoT ecosystem continues to expand, niche specialist like Cypress are able to fill a specific need for tailored products.

But admittedly, Cypress is not the only IoT-focused chip company, so what makes this special? Let’s take a closer look.

Valuation

Clearly, Cypress is trading at a steep discount to its industry. Cypress’ group is relatively small, but this does give us a great picture of how the market is valuing these micro-chip specialists right now. Just based on this earnings multiple, CY looks like one of the group’s best options, but there is even more that makes it attractive.

Earnings Outlook

Earlier this week, Cypress delivered second-quarter 2018 non-GAAP earnings of 33 cents, beating the Zacks Consensus Estimate by four cents. That earnings result market year-over-year growth of 57% and sequential growth of 23%.

Now, Cypress’ forward-looking earnings outlook is improving significantly as analysts adjust their estimates to match the company’s recent success.

Positive earnings estimate revisions tend to be correlated with positive share price momentum. We also know that these positive revisions come over time, so although we have already seen some—and CY has moved higher in the wake of the report—it is entirely possible that more adjustments come soon, which should result in even more positive momentum.

This believe is the foundation of the Zacks Rank, and the above pictured estimate revision activity has earned Cypress a Zacks Rank #1 (Strong Buy).

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>