The semiconductor was among the best performing industries in 2017, with IShares PHLX Semiconductor ETF (SOXX - Free Report) gaining 38.4%, outperforming the S&P 500 and Technology Select Sector SPDR Fund (XLK - Free Report) returns of 18.4% and 32.2%, respectively.
This impressive rally was mainly driven by escalating demand for chips used in cloud-based platforms, Artificial Intelligence (AI) tools, Augmented/Virtual (AR/VR) reality devices, autonomous cars, advanced driver assisted systems (ADAS), as well as Internet of Things (IoT) related software and hardware. Notably, according to the latest report of World Semiconductor Trade Statistics (WSTS), semiconductor revenues climbed 20.6% year over year to $408.7 billion in 2017.
It is believed that the semiconductor industry will continue to witness growth this year as well, although not as high as 2017, but still at a respectable rate. Per the WSTS report, semiconductor revenues are likely to touch $437.3 billion in 2018, representing growth of 7.7%.
The industry is poised to benefit from the rising demand from the aforementioned new trends in technologies, deployment push of 5G-broadband technology across the globe and President Trump administration’s pro-business policies, including tax cuts, deregulation and outlays on infrastructure.
Looking at the growth opportunities available for semiconductor stocks, it is wise invest in this space.
4 Semi Stocks for 2018
Right now, the semiconductor segment has several promising stocks to choose from. Here we have picked four semiconductor stocks which performed well in 2017 and have the potential to retain the momentum in the current year as well. These stocks also have a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy), VGM Style Score of A or B, and lower P/E multiple than the industry average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our first choice is Applied Materials, Inc. (AMAT - Free Report) , which is one of the largest suppliers of fabrication equipment to semiconductor, LCD and solar PV cell manufacturers. The company is currently riding on inflection-focused innovation strategy — its key growth driver.
It continues to witness technological advancements in semiconductor and display areas. Applied Materials is in a great position to grow sustainably and profitably, based on its robust pipeline of enabling technologies, supported by expanding opportunities on the semiconductor and display fronts. Also, 3D NAND, DRAM and patterning have led to significant market share gains.
Applied sees significant opportunities from emerging trends on the semiconductor and display fronts, such as artificial intelligence, big data, cloud infrastructure, IoT, virtual reality and smart vehicles.
The stock flaunts a Zacks Rank #1 and has a VGM Score of B. Based on the Zacks Consensus Estimate, Applied Materials is anticipated to finish fiscal 2018 with EPS growth of 24.2% and sales growth of 16.2%. Also, at a forward P/E multiple at 13.1x, the company currently trades at a huge discount to the industry average of 18.7x. Last year, it appreciated 58.4%.
Our next pick is Marvell Technology Group Ltd. (MRVL - Free Report) , which is a promising player in the solid state drive (SSD) controllers market and has been benefiting from the rising demand for SSD products. The storage market is witnessing a steady increase in demand, given fast-growing data volume and especially exponential growth in unstructured data. We believe the company is well positioned to grab this opportunity.
The stock sports a Zacks Rank #1 and has a VGM Score of B. Also, at a forward P/E multiple at 18.7x, the company currently trades at a discount to the industry average of 21.7x. The company gained 54.8% in 2017.
Another pick is Lam Research Corporation (LRCX - Free Report) , which supplies wafer fabrication equipment (“WFE”) and services to the semiconductor industry. The improving WFE market, robust demand for server DRAM and elevated adoption rates of 3D NAND technology will continue to propel the company’s growth. The stock rallied 74.1% last year.
Based on the Zacks Consensus Estimate, Lam is anticipated to finish fiscal 2018 with EPS growth of 48% and sales growth of 28.8%. On top of this, the stock currently trades at a forward P/E multiple of 12.8x, which is lower than the industry average of 18.7x. Lam is a Zacks Rank #2 stock and has a VGM Score of A.
The next stock on our list is KLA-Tencor Corporation (KLAC - Free Report) . KLA-Tencor is likely to benefit from an expanding product portfolio. Moreover, the technical complexity of manufacturing semiconductors and increasingly challenging yield issues are anticipated to drive growth for the company’s process control and yield-management solutions. The stock gained 33.6% last year.
Per the Zacks Consensus Estimate, KLA-Tencor is anticipated to finish fiscal 2018 with EPS growth of 23% and sales growth of 13.5%. On top of this, the stock currently trades at a forward P/E multiple of 14.5x, which is lower than the industry average of 18.7x. KLA-Tencor is a Zacks Rank #2 stock and has a VGM Score of A.
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