The protracted trade war has weighed on semiconductor stocks as can be seen from Texas Instruments Incorporated’s (TXN - Free Report) dismal third-quarter earnings report on Oct 23 and poor forecast for the next quarter. This report has instilled fear among investors that other semiconductor companies might have a similar fate.
But that isn’t the case. In fact, there are semiconductor stocks that are poised to come up with promising earnings results despite trade concerns.
Texas Instruments’ Q3 Results Discouraging
Texas Instruments' revenues fell 11.5% to $3.747 billion from $4.26 billion in the year-ago quarter.
The company’s revenues declined for the fourth time this quarter. Texas Instruments’ Analog and Embedded Processing segments incurred losses due to weakening end-market conditions. Additionally, Texas Instrument’s net income fell to $1.43 billion in the third quarter from $1.57 billion a year ago.
The trade war has weighed on semiconductor companies for long now. Rise in tariffs and blacklisting of Huawei are cited to be the reasons behind Texas Instruments’ dismal performance.
Texas Instrument’s guidance for fourth-quarter revenues has been lowered to $3.20 billion as the company is slowing down chip production and reducing the number of wafer starts until the trade war eases.
Chip Stocks to Rebound
Texas Instruments’ discouraging forecasts dragged its’ shares down by 7.5% on Oct 23 and weighed on shares of QUALCOMM Incorporated (QCOM - Free Report) , Western Digital Corporation (WDC - Free Report) and NXP Semiconductors N.V. (NXPI - Free Report) that fell 1.6%, 2.1% and 4.2%, respectively.
Is this the end of chip stocks? Well, Texas Instruments is one of the first chip makers to report quarterly results and with a reputation of being the bellwether, investors are surely tensed about the results of the rest of the sector.
But there are some semiconductor companies that are unaffected by the trade war and expected to report impressive earnings results. This is because such stocks possess a positive Earnings ESP as well as a Zacks Rank #1 (Strong Buy) or 2 (Buy).
This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
4 Chip Stocks to Buy
With the rising pessimism on easing of the United States and China trade war, and positive Earnings ESP in third quarter, we are sure that the four stocks we have shortlisted will surely grow and reap profits for investors.
Advanced Energy Industries, Inc. (AEIS - Free Report) is a publicly traded company that supplies power subsystems and process-control technologies to the semiconductor industry. The company’s expected earnings growth rate for the next year is 58.2%, above the industry’s projected rally of 38.7%. The Zacks Consensus Estimate for current-year earnings has improved 6.5% over the past 60 days.
Advanced Energy Industries flaunts a Zacks Rank #1 and has an Earnings ESP of +4.17%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Silicon Motion Technology Corporation (SIMO - Free Report) is a publicly traded company that develops microcontroller ICs for NAND flash storage devices and specialty RF ICs for mobile devices. The company’s expected earnings growth rate for the next year is 32.4%, above the industry’s projected rally of 15%.
The Zacks Consensus Estimate for current-year earnings has improved 2.9% over the past 60 days. Silicon Motion Technology carries a Zacks Rank #2 and has an Earnings ESPof +11.72%.
Advanced Micro Devices, Inc. (AMD - Free Report) is a publicly traded company that provides microprocessors, chipsets, discrete graphics processing units and professional graphics. The company’s expected earnings growth rate for the current year is nearly 37%, in contrast to the industry’s decline of 0.5%. Advanced Micro Devices carries a Zacks Rank #2 and has an Earnings ESPof +6.54%.
Ambarella, Inc. (AMBA - Free Report) is a publicly traded company that develops video compression and image processing semiconductors, which enables high-definition or HD video capture, share and display. The company’s expected earnings growth rate for the next year is 26%, above the industry’s projected rally of 15%.
The Zacks Consensus Estimate for current-year earnings has improved more than 100% over the past 60 days. Ambarella carries a Zacks Rank #2 and has an Earnings ESPof +2.38%.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>