3 Seriously Undervalued Semiconductor Stocks With Major Upside
Semiconductor stocks make the world go ‘round. Many of today’s modern conveniences wouldn’t be possible without them. Yet, you wouldn’t be able to tell that by looking at the charts or valuations of some of the top names in the sector whose shares have been decimated in the current bear market. Of course, the flip side to this is that investors have a chance to pick up some seriously undervalued semiconductor stocks at excellent prices.
While economic headwinds are weighing on demand for semiconductors, this trend will eventually reverse. And when it does, the undervalued semiconductor stocks on today’s list are set to explode higher.
|AMD||Advanced Micro Devices||$59.66|
Advanced Micro Devices (AMD)
Of the higher-end chip stocks, Advanced Micro Devices (NASDAQ:AMD) has perhaps not felt the heat as much as some of its competitors like Intel (NASDAQ:INTC) and Nvidia (NASDAQ:NVDA). However, in the company’s just-released fiscal third-quarter results, management warned that weakening PC sales will weigh on its fourth-quarter results.
Although its earnings per share missed by a penny, Advanced Micro Devices saw revenue increase 29% year over year to $5.57 billion, exceeding estimates. Management did lower their full-year revenue guidance to $23.5 billion, from a previous forecast of $26.3 billion. This was below the $23.9 billion analysts were expecting.
Yet, if the company hits its target, it will deliver revenue growth of more than 43% for the year. Admittedly, growth is projected to slow in fiscal 2023 to around 8.6%. But given the current economic environment and sharp slowdown in PC sales, that’s not so bad. And fiscal 2022’s growth will be juiced by the company’s acquisition of Xilinx. In fiscal 2024 and 2025, analysts expect revenue growth to accelerate once again to 14.2% and 19.7%, respectively.
As for earnings, analysts expect about 30% growth this year and 8.5% growth next year. Shares trade at just 16.4 times this year’s earnings estimate of $3.63 per share. AMD stock is attractively priced and trades at a big discount compared with rival Nvidia.
Intel (NASDAQ:INTC) isn’t a growth play like some of the other semiconductor stocks. Nor is it immune from the pressures other chipmakers are facing, most notably the slowdown in PC sales. For its most recently reported quarter, the company posted a 15% year-over-year revenue decline and lowered its full-year sales forecast. Moreover, revenue estimates for the next few years are bumpy. Yet, Intel stands out in the current market environment for three reasons.
First, the company’s long history means it has weathered numerous cyclical downturns successfully. In other words, this isn’t Intel’s first rodeo.
Second, earnings are forecast to be rather consistent over the next few years. It’s also worth noting that Intel delivered much better-than-expected quarterly adjusted earnings per share of 59 cents when it reported on Oct. 27. Analysts had been calling for just 32 cents per share. And although the company also reduced its earnings guidance for the full fiscal year, management said it plans to make $10 billion in cost reductions and efficiency improvements. Investors seemed pleased with the news, bidding the stock up more than 10% on the day.
The final reason to put INTC on your list of undervalued semiconductor stocks to buy is the company’s dividend. Shares throw off an attractive 5.1% yield, meaning investors get paid to wait for a rebound.
The one caveat here is that recently reduced earnings estimates mean INTC isn’t quite as attractive from a valuation perspective as it was a short time ago. It currently has a forward P/E of 14.7. A retest of the $24 level would provide a nice entry point for long-term buyers.
Texas Instruments (TXN)
Are you looking for a compromise between the two stocks above? Perhaps a stock that has a little more price stability and yield than AMD, yet more growth than Intel? Then you’ve come to the right place.
Texas Instruments (NASDAQ:TXN) throws off a 3.1% dividend yield and trades at about 17 times this year’s earnings. Analysts expect nearly 9% revenue growth this year and 12.2% earnings growth. The caveat is that consensus estimates call for a pullback in both metrics next year, so that is a risk to be aware of.
On Oct. 25, the company delivered top- and bottom-line beats, but its fourth-quarter outlook disappointed the Street. Yet, following the initial sell-off, shares have rebounded around 4%.
Short-term gyrations aside, Texas Instruments’ long-term prospects are bright. Further, the stock is down just 13.6% year to date, beating the broader market and significantly outperforming the sector. That relative strength is noteworthy and attractive for buyers.
On the date of publication, Bret Kenwell held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.