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Stocks  | May 10, 2019

Shares of some of the biggest names in the semiconductor industry, including Advanced Micro Devices AMD, Nvidia NVDA, and Micron MU have surged in 2019. However, the comebacks are largely a product of huge market-wide selloffs that created buying opportunities.

The last month has been less kind to the historically cyclical industry. Even industry heavyweights are beholden to their customers’ product cycles, capital investments, and more. On top of that, chip oversupply can hurt pricing power, as is currently the case for some firms.

Plus, we have already seen quarterly results from Intel INTC, AMD, Micron, Lam Research LRCX and others. Total Q1 earnings for chip companies that have reported results are down -18.5% from the same period last year on -5.5% lower revenues (also read: Detailed Look at Q1 Earnings Season).

Still, despite the current woes, the industry looks poised to remain highly valuable within the larger technological revolution. Semiconductor companies are poised to help drive forward the growth of the Internet of Things, artificial intelligence, autonomous vehicles, and much more. And it won’t just be the likes of Tesla TSLA, Apple AAPL, Microsoft MSFT, Google GOOGL, and Amazon AMZN that are set to turn big profits and see their stocks climb as these industries expand.

Therefore, a return to growth is likely on the horizon for the industry as a whole, even if some face rough near-term outlooks. So, let’s take a look at three Zacks buy-ranked semiconductor stocks right now.

1. Xilinx, Inc. XLNX

Xilinx’s Adaptive Compute Acceleration Platform is situated to help support the expansion of everything from AI and machine vision to databases and data compression. XLNX’s full-year fiscal 2019 revenue—which it reported on April 24—surged 24% to reach $3.06 billion. However, the company’s small bottom-line miss helped send its stock price down following its release. Despite the recent downturn, shares of Xilinx are still up 35% this year and 66% over the past 12 months.

The San Jose, California-based firm is part of the Semiconductors – Programmable Logic industry, which currently ranks #1 out of the 256 industries in our Zacks system. The company is also a dividend payer with a 1.22% yield at the moment, and both its price/sales ratio and forward P/E ratio fall in line with its industry’s average. Looking ahead, our current Zacks Consensus Estimate calls for Xilinx’s adjusted Q1 earnings to jump 27% on 24% revenue growth. The company has also seen its earnings estimate revision activity trend more heavily in the right direction following its recent earnings release, which helps it earn a Zacks Rank #2 (Buy).

2. NXP Semiconductors N.V. NXPI

NXP Semiconductors provides secure connectivity solutions for embedded applications, which includes connected vehicles and more. The company is coming off an impressive first-quarter fiscal 2019 earnings beat. The firm reported adjusted EPS of $1.95 per share to crush our $1.55 a share estimate. Looking ahead, NXP Semiconductors is projected to see it current-quarter earnings soar nearly 42%.

NXPI has earned a ton of positive earnings estimate revisions for both the coming two quarters, as well as fiscal 2019 and 2020. These recent trends help NXP Semiconductors earn a Zacks Rank #2 (Buy) right now. NXPI also sports a “B” grade for Value and an “A” for Momentum in our Style Scores system. The company’s P/S ratio of 3.6 represents a discount compared to its industry’s 5.1. Plus, NXPI is trading below its five-year median P/E of 16X at 14.4X forward 12-month Zacks Consensus EPS estimates. Like Xilinx, the Eindhoven, Netherlands-based firm pays a dividend.

3. Fujifilm Holdings Corp. FUJIY

Fujifilm Holdings is engaged in the development, production, sales, and service of imaging, information and document solutions. Shares of the firm have climbed nearly 20% in 2019 to outpace the S&P 500’s 14% surge. Despite the climb, FUJIY stock is trading at 12.7X forward 12-month Zacks Consensus EPS estimates. This represents a discount compared to its industry’s 18.6X average and both its five-year median of 14.5X and its high of 20.2X.

The company’s positive earnings estimate revision activity helps Fujifilm hold a Zacks Rank #2 (Buy) at the moment. Furthermore, FUJIY rocks “A” grades for both Value and Momentum in our Style Scores system to help it earn an overall “B” VGM grade. On top of all that, and similar to its peers we have already discussed, FUJIY’s P/S ratio comes in below its industry’s average of 1.05 at 0.91. Lastly, Fujifilm is a dividend payer, which could come in handy during the larger semiconductor market slowdown.  

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