3 Semiconductor stocks buck the trend amid market volatility

Major indicators are retesting the breakout from October as selling pressure has intensified in recent days. The Nasdaq, S&P 500 and Dow Jones Industrial Average are all down 5-8% from their November highs.

The VIX index, commonly referred to as the “Fear Scale,” has risen more than 100% over the past month. VIX generates a 30-day forward projection of volatility. Derived from the prices of the SPX Index options and represents the expectations for short-term price changes in the S&P 500.

In other words, the market expects price ranges to widen in the near term, which is a common theme when stocks fall. While this is not always the case, volatility is usually low or trending lower as stocks rise and trends are usually higher as stocks fall. The old market adage speaks of this – Arrows go up the stairs and the elevator down.

Over the past year, rallies in the VIX have represented strong buying opportunities as volatility did not stay high for long. Looking at the 2021 return of the VanEck Vectors Semiconductor ETF SMH, you wouldn’t realize that volatility has skyrocketed in the last month and that many stocks have been in bear market territory:

Zacks Investment Research

Zacks Investment Research

Image source: Zacks Investment Research

The VanEck Vectors Semiconductor ETF has doubled the Nasdaq’s performance this year with a return of 39%. SMH has 25 of the best semiconductor collectibles, including two of the three leaders we’ll discuss below. All three companies are part of Zacks Semiconductor – the analog and hybrid industry group, which is ranked in the top 7% of a total of 254 industries. This industry group has outperformed this year with a return of over 34%. Historical studies have shown that about half of the stock’s future price appreciation is due to its industrial assembly.

The relative outperformance of this industry group, particularly during a period of increased volatility, is a clear sign that these stocks are in great demand. When exiting market corrections, the stocks with the best performers usually move higher.

Although semi-finished products have advanced significantly this year, persistent supply constraint issues will continue into 2022. It is likely that the three companies listed below still have room to work. Remember – leaders lead.

ON Semiconductor Corp. (employment)

On Semiconductor is a supplier of standard semiconductor and power management integrated circuits used in various devices such as high speed fiber optic equipment and portable electronics. Headquartered in Phoenix, Arizona, it provides data flow management for precision computing and communications systems, as well as power management for the distribution and control of power supply within electronic devices.

With Sporting a Zacks rated #1 (strong buy), ON has exceeded earnings estimates in each of the past six quarters. The company recently reported a profit of $0.87, which is a 17.6% surprise over estimates. Over the past four quarters, ON has generated a surprising average dividend of 18.5%, helping the stock climb 88% over the year.

On the semiconductor company price, consensus and EPS surprise

On the semiconductor company price, consensus and EPS surprise

On the semiconductor company price, consensus and EPS surprise

Even with the significant advance, the stock is still trading relatively cheaply at 22.07 P/E, well below the industry average of 57.9. Analysts covering the company’s business revised their full-year earnings forecasts from ON to EPS at $2.8, an increase of 12.5% ​​from two months ago.

If the company implements expectations this quarter, the annualized EPS growth will reach a staggering 229.4% increase during 2020. ON is due to announce its quarterly earnings on February 7th.NS, 2022.

MaxLinear, Inc. (mxl)

MaxLinear provides analogue and mixed radio frequency signaling solutions for broadband communication applications. Headquartered in Carlsbad, California, MXL receiver products capture and process decoded analog and digital broadband signals for many applications.

MXL, also Zacks #1 Strong Buy, has easily outperformed earnings estimates in each of the past three quarters. The company recently reported earnings per share for the September quarter of $0.75, which is a surprising 10.3% compared to the consensus. Last year, MXL had a mean positive surprise of 8.7%, supporting the stock’s rise of more than 77% over the year.

MaxLinear, Inc Price, Compatibility and EPS Surprise

MaxLinear, Inc Price, Compatibility and EPS Surprise

MaxLinear, Inc Price, Compatibility and EPS Surprise

MXL is trading at a P/E multiple of 25.64, which makes it relatively undervalued when compared to the industry average of 57.9. Analysts agree on full-year earnings estimates and have revised them upward by 13.1% over the past 60 days. Zacks Consensus’s current estimate stands at $2.68, which represents a growth rate of 204.6% over 2020. MXL is due to report its earnings on February 2second abbreviation, 2022.

Analog Devices, Inc. (Noun)

Analog Devices is a global leader in the design, manufacture and marketing of high-performance digital, analog, and mixed signal processing circuits used in most electronic equipment. Founded in 1965 and headquartered in Norwood, Massachusetts, ADI’s focus has been on key strategic markets where signal processing technology plays an important role in its customers’ products.

With a Zacks #2 (buy) rating, ADI has exceeded earnings estimates in each of the past eight quarters, resulting in a healthy earnings beat trend emerging. The company boasts a 6.1% surprise average over the past four quarters, which has helped bring in a 25.2% return per share this year.

Analog Devices, Inc. Price, Compatibility & EPS Surprise

Analog Devices, Inc.  Price, Compatibility & EPS Surprise

Analog Devices, Inc. Price, Compatibility & EPS Surprise

What Zacks’ Model Reveals

Our proprietary model predicts ADI earnings will outpace for the current quarter. Zacks ESP (Earnings Surprise Expectation) looks to find companies that have recently seen positive earnings estimate review activity. This technique has proven to be helpful in finding positive surprises. In fact, when combining a Zacks rank of #3 or better with a positive ESP, the stocks produced a positive surprise 70% of the time. ADI’s current ESP is +0.03%.

Like its peers, ADI trades a relatively attractive valuation (23.9 P/E) in comparison to the industry group (57.9 P/E). Analysts have been steadily increasing earnings estimates for the year, advancing 4.3% over the past 30 days to reach a consensus of $7.54 per share. This would translate to a growth rate of approximately 16.7% compared to last year. ADI is scheduled to announce its next earnings on February 16thNS, 2022.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 of the best stocks for the next 30 days. Click for this free report

Analog Devices, Inc. (ADI): Free Stock Analysis Report

MaxLinear, Inc (MXL): Free Stock Analysis Report

VanEck Semiconductor ETF (SMH): ETF Research Reports

ON Semiconductor Corporation (ON): Free Inventory Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

Write a Comment