Lattice Semiconductors attempted to break out of a cup base as it briefly climbed above its buy point Tuesday. This chip leader — whose products are found from wearable technology to satellites — is today's IBD 50 Stocks To Watch pick.
Lattice makes low-power Field Programmable Gate Array (FPGA) integrated circuits. These specialized chips are used in edge computing networks, which are located near users. They are also used in artificial intelligence (AI), system security, 5G, factory automation and robotics.
The company's more than 9,000 customers include the fields of communications, computing, industrial and consumer markets. Data centers utilize their products for server storage and switches, security and heat management.
Defense contractors rely on the high reliability and low power used in guided systems. The space industry uses radiation-tolerant FPGAs in government and business satellites.
Their consumer-product chips are found in "smart" home security systems, wearables, desktop computers, tablets and printers.
Semiconductor Stock Taps Buy Point
The chip company reported better-than-expected adjusted Q3 earnings per share and sales on Oct. 31. That helped the stock start an uptrend, which got a tailwind on Nov. 10 as tech stocks rallied on encouraging inflation data.
Shares continued trending upward and got another boost Dec. 13 on lighter-than-expected consumer inflation data. But the stock peaked at that time, and started forming its cup base. MarketSmith pattern recognition describes it at the handle of a massive cup-with-handle base. But that would mean the "handle" is a deeper than normal at 19%.
The semiconductor stock rose in early January following news of its partnership with GuardKnox and its recognition for its new Lattice Avant FPGA platform. LSCC rose above its 21-day exponential moving average Jan. 6, finding support at the line.
Barclay's raised their price targets on several chips stocks Monday, including Nvidia, Advanced Micro Devices Qualcomm, lifting the Electronics-Semiconductor Fabless group almost 5%. Barclay's is positive on the industry and sees the China reopening as "a big theme in 2023."
LSCC rose 3.8% on lighter-than-average daily volume on Monday, in sympathy. Shares spiked and hit the buy point early in today's session in light volume, then quickly came back down. Shares are about 2% off the buy point.
The semiconductor stock rose about 15% in January so far, and is about 3% off its 52-week high.
The chip stock's relative strength line hit a new high on the daily and weekly MarketSmith charts, as indicated by the blue dots. The RS line compares a stock's performance to the S&P 500 Index.
Chip Stock Proves Steady Earnings Growth
Quarterly EPS grew at a consistently high rate ranging between 68%-71% for the last several quarters. And quarterly sales growth ranged between 25%-31% since mid-2021.
Lattice reports Q4 earnings on Feb. 13. Analysts are looking for a hefty 65% 2022 annual EPS growth with another 15% in 2023.
The chip manufacturer has a respectable 38% return on equity, a measure of a company's profitability and how well it uses its assets. The CAN SLIM investing strategy looks for a minimum of 17% ROE, so Lattice makes the grade.
The chip stock earned a best-possible "A" IBD Timeliness Rating, indicating potential relative price performance over the next 12 months. The metric uses an "A" through "E" scale, with "A" being the best rating and "E" the worst. The proprietary rating measures recent earnings changes and price performance.
Lattice ranks first out of 34 stocks in the Electronics-Semiconductor Fabless industry group. The group is ranked 94th out of the 197 groups IBD tracks.
Mutual funds own a high 74% of the semiconductor stock, with 860 funds owning shares in December, up from 811 and 754 in the prior two quarters.
Lattice Forms New Partnership And Wins A 2023 Award
Detroit's automotive tech company GuardKnox and Lattice entered into a partnership, with Lattice supplying solutions for GuardKnox's advanced Electrical/Electronics (E/E) architecture. The high speed connectivity technology will be used in next generation advanced in-vehicles applications.
The technology was demoed at CES in Las Vegas in early January. Lattice was named a winner of the 2023 BIG Innovation Award, recognized for leadership power efficiency, performance and small form factor.
ESG Committed
Lattice FPGAs use up to four times less power than competitor devices. They belong to the San Jose Clean Energy Program to purchase wind, solar and carbon clean energy. Lattice saved over 40 million gallons of water system since 2016.
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