While semiconductor sales reached an all-time high in 2022, a slump in the second half of the year severely curtailed growth. Despite the short-term downturn, the industry’s long-term growth prospects remain promising.
As a result, investors interested in investing in quality chip stocks can consider buying Applied Materials, Inc. (AMAT), ASE Technology Holding Co., Ltd. (ASX), and Park Aerospace Corp. (PKE).
Although semiconductor sales declined in the first quarter of 2023, March 2023 sales increased by 0.3% compared to February 2023, marking the first month-to-month sales increase in nearly a year.
Moreover, the Department of Commerce is overseeing $50 billion as part of the bipartisan CHIPS and Science Act funding to reinvigorate the US semiconductor industry, including $39 billion in semiconductor incentives.
The global semiconductor market was valued at $574.10 billion in 2022 and is expected to grow at a 12.2% CAGR until 2029.
Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF's (SMH) 33.6% returns over the past six months.
Let’s delve deeper into the fundamentals of the stocks.
Applied Materials, Inc. (AMAT)
AMAT provides manufacturing equipment, services, and software to the semiconductor, display, and related industries. It operates through three segments: Semiconductor Systems; Applied Global Services; and Display and Adjacent Markets.
AMAT’s forward EV/EBIT multiple of 14.37 is 13.7% lower than the industry average of 16.65. Its forward EV/EBITDA multiple of 13.28 is marginally lower than the industry average of 13.33.
AMAT’s trailing-12-month ROCE of 50.97% is significantly higher than the industry average of 1.40%. Its trailing-12-month ROTA of 23.07% is significantly higher than the industry average of 0.58%.
AMAT’s net sales increased 7.5% year-over-year for the first quarter ended January 29, 2023, to $6.74 billion. The company’s gross profit increased 6.3% year-over-year to $3.15 billion. Its EPS came in at $2.02, up marginally year-over-year.
Analysts expect AMAT’s EPS to come in at $7.04 in 2023. AMAT’s shares have gained 31.3% over the past six months to close the last trading session at $113.29.
AMAT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AMAT has an A grade for Momentum and a B for Sentiment and Quality. Within the Semiconductor & Wireless Chip industry, it is ranked #16 out of 91 stocks. Click here for the additional POWR Ratings for Value, Growth, and Stability for AMAT.
ASE Technology Holding Co., Ltd. (ASX)
Headquartered in Kaohsiung, Taiwan, ASX, together with its subsidiaries, provides semiconductors packaging and testing and electronic manufacturing services in the United States, Taiwan, Asia, Europe, and internationally.
Its forward Price/Cash Flow of 0.72x is 70.5% lower than the industry average of 2.44x, while its forward EV/Sales multiple of 0.95 is 63.4% lower than the industry average of 2.59.
ASX’s trailing-12-month ROCE and ROTA margins of 20.97% and 8.06% are significantly higher than the industry averages of 1.40% and 0.58%, respectively.
ASX’s total liabilities came in at NT$385.71 billion ($12.58 billion) for the period that ended March 31, 2023, compared to NT$387.14 billion ($12.62 billion) for the period that ended December 31, 2022. Also, its total long-term borrowings came in at NT$86.75 billion ($2.83 billion), compared to NT$94.95 billion ($3.10 billion) for the same period.
Street expects ASX’s revenue to increase 11.7% year-over-year to $22.08 billion in 2024. Its EPS is expected to grow 33.9% year-over-year to $0.86 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 35.5% to close the last trading session at $6.83.
It’s no surprise that ASX has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and Momentum. It is ranked #26 in the same industry.
Beyond what is stated above, we’ve also rated ASX for Value, Growth, Sentiment, Stability, and Quality. Get all ASX ratings here.
Park Aerospace Corp. (PKE)
PKE develops and manufactures solution and hot-melt advanced composite materials used to produce composite structures for the aerospace market in North America, Asia, and Europe.
PKE’s trailing-12-month Price/Book multiple of 1.99 is 21.8% lower than the industry average of 2.55. Its trailing-12-month EV/EBIT multiple of 15.64 is marginally lower than the industry average of 15.72.
PKE’s trailing-12-month net income margin of 15.05x is 132% higher than the 6.49x industry average. Its trailing-12-month EBIT margin of 19.64% is 105.1% higher than the 9.57% industry average.
For the fiscal third quarter ended November 27, 2022, PKE’s earnings from operations came in at $2.92 million, up 30.9% year-over-year. Its non-GAAP net earnings increased 28.1% year-over-year to $2.23 million. Its non-GAAP EPS came in at $0.11, up 37.5% year-over-year.
Over the past year, the stock has gained 17.6% to close the last trading session at $12.99.
PKE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #25 in the same industry. It has a B for Sentiment and Quality. To see additional PKE’s rating for Growth, Stability, Value, Momentum, click here.
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AMAT shares fell $0.47 (-0.41%) in premarket trading Thursday. Year-to-date, AMAT has gained 16.13%, versus a 6.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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