Chip stocks have shined amid global semiconductor shortages, but some of the biggest names are looking pricey.
Nvidia (ticker: NVDA), the best performer year-to-date in the
PHLX Semiconductor index,
or Sox, has returned roughly 130% this year. It now trades at 57.9 times estimated 2022 earnings. That’s pricey, even to the stock’s bulls.
Bernstein analyst Stacy Rasgon conceded earlier this month that the stock appears expensive on a price-to-earnings basis. But he told Barron’s he still recommends the shares because in tech a high P/E ratio isn’t necessarily a reason to sell a stock. For Nvidia, Rasgon sees strong catalysts and a stronger narrative unfolding as the company continues to monetize and expand its software offerings while benefiting from growing metaverse interest and investment.
On the other side of the equation, a low P/E ratio isn’t a reason to buy a stock, but it’s often a good place to start a search. And there are a few bargains in the semiconductor sector. That’s why Barron’s screened for the 13 cheapest stocks in the Sox index based on price to estimated 2022 earnings.
|Company / Ticker||Forward P/E||Market Value (bil)||YTD Total Return|
|Micron Technology / MU||9.9||$107.7||28.1%|
|Amkor Technology / AMKR||10.0||6.1||65.7|
|Qorvo / QRVO||13.0||17.3||-5.6|
|Skyworks Solutions / SWKS||13.5||25.9||3.6|
|Intel / INTC||14.5||210.8||6.7|
|Qualcomm / QCOM||17.7||208.5||24.5|
|Microchip / MCHP||18.3||49.0||29.2|
|II-VI / IIVI||18.5||7.3||-8.9|
|NXP Semiconductors/ NXPI||19.3||61.3||46.6|
|Applied Materials / AMAT||19.6||143.0||87.8|
|KLA / KLAC||20.0||66.0||70.0|
|ON Semiconductor / ON||20.2||29.7||110.6|
|Broadcom / AVGO||20.3||277.7||58.1|
|Lam Research / LRCX||20.7||102.3||55.3|
Memory chip firm
Micron Technology (MU) is the cheapest chip stock in the pack, trading at 8.2 times forward earnings. Earlier this week, the firm reported strong results and released a better-than-expected forecast for the current forecast. The stock has returned 26% so far this year.
Chip product packaging and test services provider
Amkor Technology (AMKR) is second, trading at 9.3 times 2022 earnings estimates. The midcap chip stock has returned 55% in 2021.
Qorvo (QRVO) and
Skyworks Solutions, both suppliers for
Apple (AAPL), trade at 11.6 and 12 times forward earnings, respectively. Both stocks have lagged behind their peers, down 7.9% and up 2.2% this year, respectively.
The fifth cheapest stock in the bunch is
Intel (INTC), which Rasgon says is a good example of a cheap, but not necessarily attractive stock. Rasgon said CEO Paul Gelsinger isn’t necessarily doing the wrong thing investing billions in turnaround efforts, but he’s bearish on the stock overall.
“He’s trying to fix 10 years of sin,” Rasgon said. “These are problems that didn’t just show up last quarter, they’ve been building for 10 years. And it’s going to take five to 10 years to fix it. He’s showing the willingness to blow up the model to fix it.”
Some of Rasgon’s other picks, like
Qualcomm (QCOM) and
Broadcom (AVGO), as well as semiconductor manufacturing equipment stocks
Applied Materials (AMAT) and
Lam Research (LRCX), also made the cut for our screen.
No one quite knows when the chip shortage will abate, but we do know there are plenty of cheap stocks that could benefit from a continued shortage in 2022.
Write to Connor Smith at [email protected]