Broadcom (AVGO - Free Report) reported second quarter earnings this week, posting non-GAAP EPS of $5.21 per share, which beat the Zacks Consensus Estimate. Despite this earnings beat, the chipmaker did not meet revenue expectations. Broadcom reported revenue of $5.52 billion, which came in below our consensus estimates; semiconductor solutions revenue also fell 10% year-over-year. Furthermore, the semiconductor company also lowered its revenue guidance for the 2019 fiscal year due to broad weakness throughout the semiconductor space. Broadcom now expects total revenue of $22.50 billion and semiconductor solutions segment revenue of $17.5 billion.
In the fallout of the company’s disappointing revenue guidance, shares of Broadcom closed down about 5.6% on Friday. Broadcom and other semiconductor companies have been feeling the effects of export restrictions on Chinese telecom equipment maker Huawei because of the United States and China’s ongoing trade dispute. Analysts estimate that Huawei makes up about 3% of Broadcom’s total revenue.
Broadcom CEO Hock Tan stated in the earnings release, “We currently see a broad-based slowdown in the demand environment, which we believe is driven by continued geopolitical uncertainties,” expressing his concern for the decrease in demand in the semiconductor industry. On a call with analysts, Tan later stated that “the environment is very, very nervous,” which caused other semiconductor stocks to fall as concern grew over the warning.
Despite the dismal picture Broadcom has painted about the semiconductor industry, there still remains stocks with strong potential upsides. While the industry has been struggling this past month, down slightly under 4%, there have been some diamonds in the rough that have been able to deliver solid results. Let’s take a more in-depth look into these stocks.
Amkor Technology (AMKR - Free Report) is the world’s largest independent provider of semiconductor packaging and test services. The company currently offers one of the industry’s broadest integrated sets of packaging and test services. Amkor is currently a Zacks Rank #1 (Strong Buy) with a Style Score of B in Value. AMKR has a P/S ratio of 0.42, which is below the industry average of 1.95 at the moment. And, the company has also been able to generate positive EPS surprises in the last four consecutive quarters, with an average surprise of 84.17%.
Diodes (DIOD - Free Report) is a leading manufacturer and supplier of high quality discrete and analog semiconductor products to markets such as communications, computing, industrial, and automotive. Diodes is currently a Zacks Rank #1 (Strong Buy) with a VGM score of A. The company also has a Zacks Style Score of A in Value. Diode’s PE ratio of 12.06X its forward earnings is well under the industry average of 17.10X, making its stock price relatively cheap. The company also has an earnings yield of 8.29% giving it higher average return rates than other stocks in the industry. Diodes also has a Style Score of B in Growth with a projected EPS growth of 17.65%, which is over 3X greater than the average in the industry. This stock has a lot of upside with its growth potential and is priced fairly, making it a strong stock to consider.
Lattice Semiconductor Corporation (LSCC - Free Report) designs, develops and markets high performance programmable logic devices and related development system software. Lattice is currently a Zacks Rank #2 (Buy) with a Style Score of A in Growth. The company projects EPS to grow over 47% for this fiscal year; estimates have also been moving in the right direction, jumping six cents for 2019 from $0.43 to $0.49 per share.
Additionally, LSCC has been on a tear the past 6 months drastically outperforming the semiconductor market. Shares are up over 100% year-to-date. Lattice’s projected growth and recent positive price movement make it a good stock to consider for investors looking for stocks with good growth potential and momentum behind it.
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