As the demand for consumer electronics has been increasing across the globe to stay connected remotely, the demand for semiconductor chips that are needed to run the gadgets is on the rise. This, along with rising demand for semiconductors from the booming EV industry, has created a massive imbalance between supply and demand. However, the resultant increase in prices has been working favorably for the chip manufacturers. This has led to significant investors’ attention to the semiconductor space, as evident from the SPDR S&P Semiconductor ETF’s (XSD) 19.4% returns over the past six months versus the SPDR S&P 500 ETF’s (SPY) 6.3% returns.
While the semiconductor manufacturers are ramping up production with government support to meet the mounting demand, the supply shortage may not end soon. With the growing applicability of chips in the tech era, defined by the Internet of things (IoT), Artificial intelligence (AI), 5G network, and cloud computing, the demand for chips should keep rising. According to Research and Markets, the global semiconductor market is expected to grow at a CAGR of over 6% by 2026.
Given this favorable backdrop, it is wise to bet on ASE Technology Holding Co., Ltd. (ASX) and O2Micro International Limited (OIIM), which are currently trading under $10 but hold immense upside potential.
ASE Technology Holding Co., Ltd. (ASX)
Based in Kaohsiung, Taiwan, ASX provides a range of semiconductors packaging and testing services and electronic manufacturing services internationally. The company offers packaging services, stacked die solutions in various package types, and copper and silver wire bonding solutions. In addition, the company provides IC wire bonding packages, system-in-package products, modules, and interconnect materials.
On November 15, 2021, ASX announced that it had achieved the best overall performance on the Dow Jones Sustainability Indices (DJSI) - Semiconductors and Semiconductor Equipment Industry Group for the sixth consecutive year. The DJSI achievement is a firm recognition of ASX’s outstanding performance in sustainability in tandem with growth and innovation in a competitive global industry.
ASX’s net revenues increased 22% year-over-year to NT$150.67 billion ($5.45 billion) for the third quarter ended September 30, 2021. Its net income grew 111.2% year-over-year to NT$14.18 billion ($512.98 million), while its EPS increased 107.8% year-over-year to NT$3.20.
For the quarter ending March 31, 2022, analysts expect ASX’s EPS and revenue to increase 28.6% and 17.7% year-over-year to $0.18 and $5.01 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 6% to close yesterday’s trading session at $7.48.
ASX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Value and Sentiment and a B grade for Momentum.
We have also graded ASX for Growth, Stability, and Quality. Click here to access all of ASX’s ratings. ASX is ranked #43 of 100 stocks in the A-rated Semiconductor & Wireless Chip industry.
O2Micro International Limited (OIIM)
Headquartered in George Town, the Cayman Islands, OIIM is engaged in the designing, developing, and marketing of integrated circuits and solutions for power management components and systems internationally. The company’s offerings include analog and mixed-signal integrated circuits, control and monitor battery charging and discharging, and provide select and switch functionality and other products.
On January 20, 2022, OIIM announced the patent grant of a critical system and method for driving a light source. Dr. Yung Lin, Executive Vice President, OIIM, said, "This invention provides a cost-effective solution to the system power management where both regulated DC output and LED driver are present.”
OIIM’s revenues increased 22.6% year-over-year to $27.27 billion for the third quarter ended September 30, 2021. Its net income grew 25.5% year-over-year to $3.68 billion, while its EPS increased 20% to $0.12.
Analysts expect OIIM’s EPS and revenue to increase 19.4% and 11.6% year-over-year to $0.43 and $112.40 million, respectively, in fiscal 2022. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past three years, the stock has gained 145.3% to close yesterday’s trading session at $4.05.
OIIM’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to Buy in our proprietary ratings system. It has an A grade for Value and a B grade for Sentiment and Momentum.
Click here to see the additional POWR Ratings for OIIM (Growth, Stability, and Quality). It is ranked #33 in the same industry.
ASX shares were unchanged in after-hours trading Thursday. Year-to-date, ASX has declined -4.23%, versus a -5.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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