For immediate release
Chicago, IL – December 3, 2021 – Today Zacks Investment Ideas highlights the following features: VanEck Vectors Semiconductor ETF SMH, ON Semiconductor Corporation ON, MaxLinear, Inc. MXL and Analog Devices, Inc. ADI.
3 Semiconductor Stocks Countering Trend Amid Market Volatility
The major indices are testing the October breakout again as selling pressure has intensified in recent days. The Nasdaq, S&P 500 and Dow Jones Industrial Average all touched between 5% and 8% from their November highs.
The VIX Index, commonly referred to as the “fear gauge,” has climbed over 100% over the past month. The VIX generates a forward looking 30 day volatility projection. It is derived from the prices of options on the SPX index and represents expectations regarding short-term price movements of the S&P 500.
In other words, the market expects price ranges to widen in the short term, which is a common theme when stocks are falling. Although this is not always the case, volatility is normally low or tends down when stocks rise and generally tends up when stocks fall. The old market adage speaks of this – actions go up the stairs and down the elevator.
Over the past year, the VIX spikes have represented strong buying opportunities as volatility has not stayed high for too long. Looking at the 2021 performance of the VanEck Vectors Semiconductor ETF, you won’t realize that volatility has increased so drastically over the past month and that many stocks were in bear market territory:
The VanEck Vectors Semiconductor ETF doubled the performance of Nasdaq this year with a return of 39%. SMH contains 25 of the top semiconductor holdings, including two of the top three we will discuss below. All three companies are part of the Zacks Semiconductor – Analog and Mixed industry group, which ranks in the top 7% of 254 industries.
This industrial group outperformed this year with a return of over 34%. Historical studies have shown that about half of future appreciation in a stock’s price is due to its industry consolidation.
The relative outperformance of this industry group, especially during a period of heightened volatility, is a clear sign that these stocks are in high demand. When market corrections come out, the stocks that have held up the best normally move up the leg.
Although semi-trailers have made significant progress this year, ongoing supply constraint issues will continue until 2022. The three companies below likely still have room to operate. Remember, leaders lead.
On Semiconductor is a supplier of standard semiconductors and power management integrated circuits used in various devices such as high speed fiber optic equipment and portable electronics. Based in Phoenix, AZ, ON, provides data flow management for precision computing and communication systems, as well as power management for the distribution and monitoring of power in electronic devices.
Sporting a Zacks # 1 (Strong Buy) rank, ON has beaten earnings estimates in each of the past six quarters. The company recently reported a profit of $ 0.87, a surprise of 17.6% compared to estimates. Over the past four quarters, ON has produced an average earnings surprise of 18.5%, which helped the stock climb 88% on the year.
Even with the strong advance, the stock is still trading relatively low at a P / E of 22.07, well below the industry average of 57.9. Analysts covering the company have revised their full-year profit outlook for ON to $ 2.8, a 12.5% increase from two months ago.
If the company meets expectations this quarter, annual EPS growth would reach an astonishing 229.4% increase from 2020. ON is expected to release its quarterly results on February 7.e, 2022.
MaxLinear provides analogue radio frequency and mixed signal solutions for broadband communication applications. Based in Carlsbad, California, MXL’s receiver products capture and process wideband digital and analog signals that are decoded for many applications.
MXL, also a # 1 Strong Buy Zacks, has significantly exceeded earnings estimates in each of the past three quarters. The company recently reported EPS of $ 0.75 for the quarter ending September, a 10.3% surprise from consensus. Over the past year, MXL delivered an average positive surprise of 8.7%, supporting the title’s rise of over 77% over the year.
MXL is trading at a P / E multiple of 25.64, which marks it relatively undervalued compared to the industry average of 57.9. Analysts agree with the annual profit estimates and have revised them up 13.1% in the past 60 days. Zacks’ current consensus estimate is $ 2.68, which represents a 204.6% growth rate from 2020. MXL is due to release its results on February 2.sd, 2022.
Analog Devices is a world leader in the design, manufacture and marketing of high performance analog, mixed and digital signal processing circuits used in most electronic equipment. Founded in 1965 and headquartered in Norwood, MA, ADI focuses on key strategic markets where their signal processing technology plays an important role in their customers’ products.
With a Zacks # 2 (Buy) ranking, ADI has beaten earnings estimates in each of the past eight quarters, producing a healthy trend in earnings beats. The company has averaged 6.1% surprise over the past four quarters, which has helped the stock’s 25.2% return this year.
What the Zacks model reveals
Our proprietary model predicts higher profits for ADI for the current quarter. Zacks ESP (Earnings Surprise Prediction) seeks to find companies that have recently seen positive earnings estimate revision activity. The technique has been found to be useful in finding positive surprises. In fact, by combining a Zacks # 3 or better ranking with a positive ESP, stocks produced a positive surprise 70% of the time. ADI’s current PSE is + 0.03%.
Like its counterparts, ADI is trading at a relatively attractive valuation (23.9 P / E) compared to the industry group (57.9 P / E). Analysts have steadily increased their earnings estimates for the year, advancing 4.3% in the past 30 days to reach a consensus of $ 7.54 per share. This would translate into a growth rate of around 16.7% compared to last year. ADI is expected to publish its next earnings announcement on February 16e, 2022.
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