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4 Semiconductor Stocks to Buy in a Promising Industry

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The semiconductor shortage has been hurting several industries, especially the original equipment manufacturers (OEMs). Among these, the automobile industry is one of the biggest sufferers, with many cutting down production.

This has raised concerns among global leaders, who are now seeking collaborations to address the global semiconductor shortage that has been a threat to the automobile industry for more than a year now. However, higher demand has been helping chipmakers, which are raking in revenues. Thus, chip stocks like Analog Devices (ADI - Free Report) , ON Semiconductor Corporation (ON - Free Report) , Vishay Intertechnology, Inc. (VSH - Free Report) and MACOM Technology Solutions Holdings, Inc. (MTSI - Free Report) are likely to benefit in the near term.

Semiconductor Shortage Hurting OEMs

The automobile industry, which took a major hit during the peak of the pandemic, is yet to recover from the losses. However, the reason is something different. The ongoing semiconductor shortage has been biting into the profits of automakers as they continue to cut down production owing to the microchip shortage.

In recent months, almost all major automobile manufacturers have cut down on production and are struggling to supply vehicles on time. Recently, Toyota Motor Corporation (TM - Free Report) announced that it would be cutting the production of motor vehicles by tens of thousands due to semiconductor shortages.

According to Toyota, this has suspended manufacturing of 16 Toyota production lines in 10 plants in May and June, out of its 28 lines across 14 plants.

Also, Ford Motor Company (F - Free Report) last month said that it has stopped production of the sixth-generation Ford Mustang due to the semiconductor crisis. Also, Ford said that it lost $3.1 billion in the first quarter of 2022 due to chip shortage as it was unable to produce enough motor vehicles.

Toyota and Ford aren’t the only companies complaining about chip shortage. Many carmakers have cited that they are unable to provide music systems in motor vehicles due to the same reason.

Global leaders also seem to be concerned about the crisis, as experts predict that the shortage, although as somewhat eased, is far from over and would continue through 2022.

On May 23, President Joe Biden and Japanese Prime Minister Fumio Kishida agreed to deepen bilateral economic security cooperation to boost the supply chain of semiconductors.

Semiconductor Makers on a High

The global semiconductor shortage has been intensified by the ongoing Russia-Ukraine war, which has slowed down the supply of raw materials for making chips that come from these two countries. During their discussion here, Kishida and Biden agreed to increase semiconductor manufacturing capacity and diversify the industry.

That said, the shortage has also made semiconductor manufacturers ramp up production. Even then, companies are struggling to meet the demand for semiconductors.

Surging demand amid a global crisis has resulted in record semiconductor sales and revenues. Notably, global semiconductor sales jumped a whopping 23% in the first quarter on a year-over-year basis to $151.7 billion, according to the Semiconductor Industry Association (“SIA”).

Sales increased 1.1% month over month to $50.6 billion in March. Semiconductor sales have risen in each of the last three months. SIA also stated that sales increased year over year in all the key markets in March.

Moreover, global semiconductor revenues are expected to reach $676 billion in 2022, up 13.6% year over year, according to a Gartner analysis. The key driver of higher revenues would be soaring demand for semiconductors.

Our Choices

The semiconductor industry is only likely to benefit in the near term on skyrocketing demand amid supply shortage. In the current market, there are four chip stocks that investors might gain from.

Analog Devices is an original equipment manufacturer of semiconductor devices, specifically, analog, mixed-signal and DSP integrated circuits. ADI’s product line is composed of amplifiers and comparators; analog to digital converters; digital to analog converters; video encoders and decoders; embedded processing products and DSPs; MEMS and temperature sensors; RF/IF components and converters; power and thermal management ICs, audio/video converters, amplifiers, CODECs, filters and processors. Analog Devices has manufacturing facilities in the United States, Ireland, and Southeast Asia.

Analog Devices’ expected earnings growth rate for the current year is 43%. The Zacks Consensus Estimate for current-year earnings has improved 11.1% over the past 60 days. ADI carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ON Semiconductor Corporation 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. ON’s products provide clock management and data flow management for precision computing and communications systems, and power management for distributing and monitoring the supply of power to different elements within virtually every electronic device.

ON Semiconductor’s expected earnings growth rate for the current year is 66.4%. The Zacks Consensus Estimate for current-year earnings has improved 18% over the past 60 days. ON sports a Zacks Rank #1.

Vishay Intertechnology, Inc. is a global manufacturer and supplier of semiconductors and passive components. VSH’s products include metal oxide semiconductor field-effect transistors, diodes and optoelectronic components.

Vishay Intertechnology’s expected earnings growth rate for the current year is 15.5%. The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 60 days. VSH carries a Zacks Rank #2.

MACOM Technology Solutions Holdings, Inc. is a provider of power analog semiconductor solutions to varied markets. MTSI develops and produces analog radio frequency, microwave and millimeter-wave semiconductor devices, and components for applications in optical, wireless, and satellite networks. MACOM Technology primarily serves three markets, namely, data center, industrial & defense, and telecom.

MACOM Technology’s expected earnings growth rate for the current year is 27.9%. The Zacks Consensus Estimate for current-year earnings has improved 1.5% over the past 60 days. MTSI sports a Zacks Rank #1.

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