The semiconductor industry is well-positioned for long-term growth, driven by its increasing applications across diverse fields. Additionally, the growing adoption of emerging technologies is expected to boost the demand for advanced chips.
Given this backdrop, it could be wise to ride the momentum in fundamentally strong semiconductor stocks Cohu, Inc. (COHU), Amkor Technology, Inc. (AMKR), and inTEST Corporation (INTT).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the semiconductor industry is well-positioned for growth.
The semiconductor industry is thriving, with chips playing a crucial role in various sectors. Chips can be found in nearly every electronic device and various automotive and industrial machinery. Global semiconductor industry sales totaled $44 billion in August, indicating a sequential increase of 1.9%.
Apart from the massive demand for semiconductors, the industry is benefiting from favorable government initiatives like the CHIPS and Science Act. Under the CHIPS and Science Act, around $53 billion was allocated to boost semiconductor manufacturing, research, and workforce development in the United States.
Additionally, it provides a 25 percent tax credit for capital investments in semiconductor manufacturing. The U.S. government is aiming to boost domestic manufacturing of semiconductors. Over the past year, businesses have announced investments exceeding $166 billion in semiconductor and electronics manufacturing following the implementation of the CHIPS law.
The semiconductor industry is progressing with advanced technology like nanotechnology and new materials to make more efficient chips. The booming smartphone market is increasing the need for high-performance chips, improving user experiences.
Furthermore, the adoption of emerging technologies like 5G, artificial intelligence (AI), machine learning (ML), etc., is boosting the demand for advanced chips. The global semiconductor market is expected to grow at a CAGR of 12.3% to reach $1.88 trillion by 2032.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Semiconductor & Wireless Chip picks, beginning with the third choice.
Stock #3: Cohu, Inc. (COHU)
COHU provides semiconductor test equipment and services in China, the United States, Taiwan, Malaysia, the Philippines, and internationally. The company supplies semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, test contactors, thermal sub-systems, and semiconductor automated test equipment for semiconductor manufacturers and test subcontractors.
On October 2, 2023, COHU announced the acquisition of Equiptest Engineering Pte. Ltd. (EQT), a semiconductor test contactors and consumables provider, enhancing COHU's capabilities. The acquisition is expected to boost its fiscal 2024 performance.
COHU’s CEO, Luis Müller, expressed pleasure in welcoming EQT to the company, emphasizing the acquisition's potential to accelerate growth and expand their offerings, particularly in automotive and industrial markets.
COHU’s EBITDA grew at a CAGR of 58.8% over the past three years. Its levered FCF grew at a CAGR of 35.7% over the past three years. Moreover, its revenue grew at a CAGR of 14.9% over the past five years.
In terms of the trailing-12-month EBIT margin, COHU’s 13.10% is 166.8% higher than the 4.91% industry average. Its 9.75% trailing-12-month net income margin is 361.8% higher than the 2.11% industry average. Likewise, its 7.88% trailing-12-month Return on Common Equity is 555.1% higher than the industry average of 1.20%.
COHU’s net sales for the second quarter ended July 1, 2023, came in at $168.92 million. Its non-GAAP income from operations came in at $29.91 million. The company’s non-GAAP net income came in at $22.84 million. In addition, its non-GAAP net income per share came in at $0.48.
Analysts expect COHU’s EPS and revenue for fiscal 2024 to increase 42.3% and 12.5% year-over-year to $2.47 and $736.69 million, respectively. It surpassed the consensus EPS estimates in each of the four trailing quarters. Over the past year, the stock has gained 19.2% to close the last trading session at $34.93.
COHU’s stock is trading above its 10-day moving average of $34.35.
COHU’s strong fundamentals are reflected in its POWR Ratings. It 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.
It is ranked #18 out of 90 stocks in the Semiconductor & Wireless Chip industry. It has an A grade for Momentum and a B for Value and Sentiment. Click here to see the additional ratings of COHU for Growth, Stability, and Quality.
Stock #2: Amkor Technology, Inc. (AMKR)
AMKR provides outsourced semiconductor packaging and test services in the U.S., Japan, Europe, the Middle East, Africa, and the Asia Pacific.
On September 18, 2023, AMKR announced its inclusion in the PHLX Semiconductor Sector Index (SOX), effective September 18, 2023, reflecting its position among the 30 largest US-listed semiconductor companies.
Giel Rutten, President and CEO at AMKR, said, “Our inclusion into the SOX is a reflection of the success of our strategic focus and financial transformation, driving substantial growth in market capitalization unlocking significant shareholder value.”
AMKR’s revenue grew at a CAGR of 14.7% over the past three years. Its EPS grew at a CAGR of 27.7% over the past three years. Moreover, its EBITDA grew at a CAGR of 14.5% over the past three years.
In terms of the trailing-12-month Capex/Sales margin, AMKR’s 12.29% is 404.3% higher than the 2.44% industry average. Its 8.38% trailing-12-month net income margin is 296.8% higher than the 2.11% industry average. Likewise, its 16.74% trailing-12-month Return on Common Equity is significantly higher than the industry average of 1.20%.
AMKR’s total net sales for the second quarter ended June 30, 2023, came in at $1.46 billion. Its gross profit came in at $186.87 million. The company’s net income attributable to AMKR came in at $64.29 million. Additionally, its net income per share stood at $0.26.
For the six months ended June 30, 2023, its cash, cash equivalents, and restricted cash, end of period rose 9.6% year-over-year. Also, its total current liabilities came in at $1.58 billion, compared to total current liabilities of $1.66 billion for the fiscal year ended December 31, 2022.
Analysts expect AMKR’s EPS and revenue for the quarter ending March 31, 2024, to increase 116.7% and 9.9% year-over-year to $0.39 and $1.62 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 20.1% to close the last trading session at $22.67.
AMKR’s stock is trading above its 10-day moving average of $22.48.
AMKR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value, Momentum, and Sentiment. It is ranked #14 in the same industry. To see AMKR’s Growth, Stability, and Quality ratings, click here.
Stock #1: inTEST Corporation (INTT)
INTT supplies test and process solutions to various industries worldwide, including automotive, defense/aerospace, industrial, life sciences, security, and semiconductors. The company operates through three segments: Electronic Test; Environmental Technologies; and Process Technologies.
On October 5, 2023, INTT announced the relocation of its electronic circuit and electric vehicle battery automated test equipment, inTEST Acculogic, to a new 25,000-square-foot facility in Markham, Ontario, and an office complex to improve operational efficiencies and enhance custom service.
Joe McManus, Division President for the Electronic Test Division at INTT, predicted that the consolidation of operations in the new facility would enhance collaboration, coordination, and operational efficiencies, leading to reduced time to product launch and the implementation of lean manufacturing practices.
INTT’s EBITDA grew at a CAGR of 99.8% over the past three years. Its EBIT grew at a CAGR of 266.7% over the past three years. Moreover, its revenue grew at a CAGR of 34.3% over the past three years.
In terms of the trailing-12-month EBIT margin, INTT’s 11.01% is 124.2% higher than the 4.91% industry average. Its 13.49% trailing-12-month EBITDA margin is 47.1% higher than the 9.17% industry average. Likewise, its 15.15% trailing-12-month Return on Common Equity is significantly higher than the industry average of 1.20%.
For the second quarter ended June 30, 2023, INTT’s revenues increased 10.1% year-over-year to $32.56 million. Its gross profit increased 10.9% year-over-year to $15.03 million. The company’s operating income increased 22.6% year-over-year to $3.34 million. Also, its adjusted EBITDA came in at $4.80 million, representing an increase of 14.4% year-over-year.
Its adjusted net earnings rose 18.7% year-over-year to $3.23 million. In addition, its adjusted EPS came in at $0.28, representing an increase of 12% year-over-year.
For the fiscal year ending December 31, 2023, INTT’s EPS is expected to increase 6.6% year-over-year to $1.06. Its revenue for the quarter ended September 30, 2023, is expected to increase 6.1% year-over-year to $32.65 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 88.7% to close the last trading session at $14.91.
INTT’s stock is trading above its 10-day moving average of $14.82.
It’s no surprise that INTT has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value. Within the Semiconductor & Wireless Chip industry, it is ranked #13. In total, we rate INTT on eight different levels. Beyond what we stated above, we also have given INTT grades for Growth, Stability, Sentiment, and Quality. Get all the INTT ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AMKR shares were trading at $22.43 per share on Monday afternoon, down $0.24 (-1.06%). Year-to-date, AMKR has declined -5.66%, versus a 13.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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