The current semiconductor shortage has been impacting several industries, primarily automotive and consumer electronics. However, huge investments by governments and enterprises to ramp up production should help the semiconductor industry increasingly meet skyrocketing demand.
According to Statista, global semiconductor sales are expected to reach $550.90 billion in 2021, representing a 25.1% year-over-year rise. Investors’ interest in the semiconductor industry is evident in the iShares Semiconductor ETF’s (SOXX) 17.7% returns over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) 6.7% gains.
So, given the industry’s solid growth prospects, we think fundamentally sound semiconductor stocks Broadcom Inc. (AVGO) and United Microelectronics Corporation (UMC) could be solid picks now. These stocks have an overall A (Strong Buy) rating in our proprietary POWR Ratings system.
Click here to checkout our Semiconductor Industry Report for 2021
Broadcom Inc. (AVGO)
AVGO develops and supplies semiconductor infrastructure software solutions. It operates through two segments: Semiconductor Solutions and Infrastructure Software. Also, its category-leading product portfolio serves critical markets, including data centers, networking, and others. AVGO is headquartered in San Jose, Calif.
On September 22, AVGO launched the world’s lowest power L1/L5 GNSS receiver chip, the BCM4778, which is optimized for mobile and wearable applications. Vijay Nagarajan, vice president of marketing for the Wireless Communications and Connectivity Division at AVGO, said, “With the launch of this third-generation dual-frequency GNSS receiver chip, Broadcom continues the tradition of raising the bar for mobile GNSS.”
AVGO’s non-GAAP net revenue increased 16.4% year-over-year to $6.78 billion for its fiscal third quarter, ended August 1, 2021. The company’s non-GAAP net income increased 28.3% year-over-year to $3.12 billion. Also, its non-GAAP EPS came in at $6.96, up 28.9% year-over-year.
Analysts expect AVGO’s revenue to increase 14.8% year-over-year to $27.41 billion in its fiscal year 2021. Its EPS is expected to grow 26.1% year-over-year to $27.94 in the current year. In addition, it has surpassed the Street’s EPS estimates in each of the trailing four quarters. And, over the past nine months, the stock has gained 16.1% in price to close yesterday’s trading session at $555.40.
AVGO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
AVGO has a B grade for Growth, Quality, Momentum, Sentiment, and Stability. Within the Semiconductor & Wireless Chip industry, it is ranked #1 of 102 stocks. Click here to see the additional POWR Rating for Value for AVGO.
Recently the Reitmeister Total Return Portfolio (RTR) closed a winning trade in AVGO for a 25% gain. Learn more about the RTR service here.
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC operates is a semiconductor wafer foundry that operates across Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. The company’s segments include Wafer Fabrication and New Business segments.
On September 3, 2021, UMC and Chipbond announced their strategic cooperation by exchanging new share issuance. UMC’s President SC Chien said, “By combining the technical expertise of both parties and integrating upstream and downstream resources, we can provide customers with advanced process technology solutions and a more comprehensive service.”
For its fiscal third quarter, ended September 30, 2021, UMC’s operating revenues increased 24.6% year-over-year to NT$55.91 billion ($2.01 billion). The company’s gross profit came in at NT$20.54 billion ($739.23 million), up 110.3% year-over-year. Its net income increased 91.7% year-over-year to NT$17.46 billion ($628.26 million). Also, its EPS was NT$1.43, up 90.7% year-over-year.
UMC’s revenue is expected to come in at $10.8 billion in its fiscal year 2022, representing a 42.3% year-over-year rise. The company’s EPS is expected to increase 88.1% year-over-year to $0.79 in the current year. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. And, over the past year, the stock has gained 105.8% in price to close yesterday’s trading session at $11.40.
It is no surprise that UMC has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has a B grade for Value, Momentum, Sentiment, and Quality.
UMC is ranked #2 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for UMC (Growth and Stability).
Click here to checkout our Semiconductor Industry Report for 2021
AVGO shares were trading at $563.69 per share on Friday morning, up $8.29 (+1.49%). Year-to-date, AVGO has gained 31.72%, versus a 26.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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