Onsemi, formerly known as ON Semiconductor, broke out in a new sign of leadership for the chip sector. The semiconductor leader is Thursday's IBD 50 Stocks To Watch pick.
Onsemi derives 40% of its business from the automotive industry, 28% from industrials, and the remainder from the internet connectivity, aerospace and medical industries.
The Phoenix-based company's products are used in electric vehicles, sustainable energy grids, industrial automation, and 5G and cloud infrastructure. Fifty-six percent of revenue comes from the Asia-Pacific region, 19% from the Americas, 17% from Europe and 7% from Japan.
The "L" in the CAN SLIM investing strategy stands for leadership, and seeks top companies in their industries. A leader's standing is based on high quarterly and annual earnings and sales growth, margins, product dominance and stock performance.
Onsemi is ranked second out of 31 stocks in the chipmaking industry group. The group ranks a humble 116th out of the 197 IBD groups, and below the top 20 to 40 ranking CAN SLIM seeks.
The semiconductor group has gained over 18% in 2023, making it a leader of the new stock market uptrend.
The group revived in January following strong economic data and positive earnings reports from peers including STMicroelectronics and Advanced Micro Devices. Wednesday's tech stocks got a boost from Facebook parent Meta Platform's strong Q4 report, and the Federal Reserve's quarter-point rate hike and policy comments.
Onsemi announced on Jan. 25 it will deliver electric vehicle power modules to Volkswagen. Shares rose 2.5% on the news. Several analysts raised their price targets on Onsemi in late January.
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Onsemi Stock Hits Buy Point, 52-Week High
Shares of Onsemi rose 6% and broke out of a cup base, hitting a 77.38 buy point in heavier than average daily volume Wednesday. The stock rose another 5% on Thursday and hit a 52-week high. Shares are in the 5% buy zone reaching to 81.25. ON shares gained over 28% in 2023 so far.
The relative strength line hit a new high as indicated by the blue dot on the weekly MarketSmith chart. The Relative Strength Rating climbed to 91 from 80 just four weeks ago, outperforming 91% of the stocks IBD tracks, in the last 12 months.
Growing Gross Margins And EPS
Quarterly sales growth ranged from 25% to 38% in the last six quarters, while quarterly EPS grew every quarter in the same time period. Quarterly gross margins ratcheted up to 49% in 2022, from the mid-30s to mid-40s in 2021, through manufacturing consolidation and optimizing product mix.
Analysts project $5.27 annual EPS in 2022, up from $2.95 in 2021, easing to $4.50 in 2023. Onsemi has a 67% three-year annual EPS growth rate, according to IBD Stock Checkup. ON reports Q4 earnings on Feb. 6. Analysts expect Q4 earnings of $1.26 a share, up 16%, according to FactSet. Revenue is seen rising 13% to $2.078 billion.
Mutual funds own 71% of shares, with 2,299 funds in December, up from 2,173 in September and 2,044 in June, according to MarketSmith.
Chipmaker Earns Dow Jones And IBD Accolades
Onsemi ranks 52nd out of 100 for its second consecutive year in Investor's Business Daily 100 Best ESG Companies for 2022. Onsemi earned four consecutive years in the Dow Jones Sustainability Index.
The company commits to using 50% renewable energy by 2030 and 100% by 2040, with net-zero emissions by 2040.
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