The Federal Reserve’s aggressive monetary policy stance has led to a broad-based tech sell-off. The tech-heavy Nasdaq Composite lost 11.4% over the past month. With investors shunning highly-priced tech stocks on concerns over the rising interest rates taking a toll on them, the industry might witness a further downtrend in the near term.
Growing dependence on cutting-edge tech solutions positions the tech industry well for long-term growth. Therefore, experts see the current tech sell-off as an opportunity to buy fundamentally sound and resilient tech stocks.
While the overall tech industry witnessed a decline last week, relatively lower valuation and higher profitability have allowed Microchip Technology Incorporated (MCHP), NXP Semiconductors N.V. (NXPI), International Business Machines Corporation (IBM), Broadcom Inc. (AVGO), and ON Semiconductor Corporation (ON) to gain. Therefore, it could be worth adding these stocks to your watchlist.
Microchip Technology Incorporated (MCHP)
MCHP develops, manufactures, and sells semiconductor products for various embedded control applications. The company offers general purpose 8-bit, 16-bit, and 32-bit microcontrollers, 32-bit embedded microprocessors markets, and specialized microcontrollers for automotive, industrial, computing, communications, lighting, power supplies, motor control, human-machine interface, security, wired connectivity, and wireless connectivity applications. It offers wafer foundry and assembly and test subcontracting manufacturing services, timing systems products, application-specific integrated circuits, and aerospace products.
On March 21, 2022, MCHP announced the expansion of its SiC portfolio with the release of the industry’s lowest on-resistance [RDS(on)] 3.3 kV SiC MOSFETs and highest current-rated SiC SBDs available in the market. MCHP’s 3.3 kV SiC power devices include MOSFETs with the industry’s lowest RDS(on) of 25 mOhm and SBDs with the industry’s highest current rating of 90 amps, enabling designers to simplify their design, create higher-power systems and use fewer paralleled components for smaller, lighter and more efficient power solutions. MCHP should witness great demand for these products in the coming months.
For its fiscal 2022 third quarter ended December 31, 2021, MCHP’s net sales increased 30% year-over-year to $1.76 billion. The company’s non-GAAP gross profit came in at $1.16 billion, up 36.3% from the year-ago period. Its non-GAAP operating income came in at $784.50 million, indicating a 45.8% rise from the prior-year period. MCHP’s non-GAAP net income increased 53.2% year-over-year to $681.70 million. Its non-GAAP EPS came in at $2.14, representing a 48.2% year-over-year improvement.
Analysts expect MCHP’s EPS to grow 37.4% year-over-year to $5.17 for its fiscal 2023 ending March 31, 2023. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $6.79 billion for the same fiscal year represents a 24.9% rise from the prior-year period. The company’s EPS is expected to grow at a rate of 20.5% per annum over the next five years.
The stock’s 1.06x non-GAAP forward PEG is 23.5% lower than the 1.38x industry average. In terms of forward Price/Cash Flow, MCHP is currently trading at 13.13x, 23.3% lower than the 17.11x industry average.
The stock’s trailing-12-month gross profit margin, EBITDA margin, and levered free cash flow margin are 64.5%, 42.8%, and 31.6%, respectively. Last week, the stock gained 3.6% to close Friday’s trading session at $67.56.
MCHP’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Growth. Click here to see the additional ratings for MCHP’s Value, Quality, Stability, Sentiment, and Momentum.
MCHP is ranked #41 of 96 stocks in the B-rated Semiconductor & Wireless Chip industry.
NXP Semiconductors N.V. (NXPI)
NXPI is a Netherlands-based company that designs semiconductors and software for mobile communications, consumer electronics, security applications, in-car entertainment, and networking. The company sells its products to automotive, identification, wireless infrastructure, lighting, mobile, and computing applications.
On March 1, 2022, Taiwan-based computer manufacturing company Compal Electronics chose NXPI’s Layerscape and Layerscape Access family of processors to power its new 5G Integrated Small Cell (ISC) solution. The Layerscape multicore processors provide high levels of integration and leverage Arm 64-bit cores, while the Layerscape Access programmable baseband processors provide unprecedented flexibility via programmable engines for PHY/baseband processing. The new solution delivers high-performance capabilities based on a 4-antenna configuration to enhance 5G network density while offering low latency. This should enable NXPI's solutions to gain wide market reach in the coming months.
NXPI’s revenue for its fiscal 2022 first quarter ended April 3, 2022, increased 22.2% year-over-year to $3.14 billion. The company’s non-GAAP gross profit came in at $1.81 billion, up 29.8% from the prior-year period. Its non-GAAP operating income increased 41.3% year-over-year to $1.12 billion. While its adjusted net earnings increased 43.6% year-over-year to $1.20 billion, its EPS grew 98.4% to $2.48. The company had $2.68 billion in cash and cash equivalents as of April 3, 2022.
Analysts expect the company’s EPS to hit $13.73 for fiscal 2022 ending December 31, 2022, representing a 27.6% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $13.11 billion for the same fiscal year indicates an 18.5% year-over-year improvement. Analysts expect NXPI’s EPS to improve at an 11.1% rate per annum over the next five years.
NXPI’s 0.71x non-GAAP forward PEG is 48.4% lower than the 1.38x industry average. In terms of forward Price/Cash Flow, NXPI is currently trading at 11.52x, which is 32.7% lower than the 17.11x industry average.
NXPI’s trailing-12-month gross profit margin, EBITDA margin, and levered free cash flow margin are 55.8%, 35.3%, and 19.1%, respectively. Last week, the stock gained 3.9% to close Friday’s trading session at $177.58.
NXPI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Growth and Quality. Click here to see the additional ratings for NXPI (Sentiment, Momentum, Value, and Stability).
NXPI is ranked #23 in the Semiconductor & Wireless Chip industry.
International Business Machines Corporation (IBM)
IBM provides integrated solutions and services worldwide. The company operates through six segments—Cloud & Cognitive Software; Global Business Services; Global Technology Services; Systems; Global Financing; and Other. It offers application, technology consulting and support, process design and operations, cloud, digital workplace, network services, business resiliency, strategy, and design solutions.
On April 25, 2022, at the National Association of Broadcasters (NAB) show in Las Vegas, IBM, and its subsidiary The Weather Company, a weather forecasting and IT company, unveiled the latest innovations to its Max Platform, Max Velocity, and Max Alert Live. Max Velocity, a new browser-based video storytelling tool built on Max Cloud, allows media clients to create high-quality digital content quickly and easily from any environment for publishing across platforms. Launching in June, Max Alert Live will keep audiences informed through on-air notification of disruptive weather events. These tools should help them gain reach across the industry in the future.
For its fiscal 2022 first quarter ended March 31, 2022, IBM’s total revenue increased 7.7% year-over-year to $14.20 billion. The company’s non-GAAP gross profit came in at $7.52 billion, up 4.4% from its year-ago period. Its non-GAAP income from operations came in at $1.27 billion for the quarter, indicating a 25.5% year-over-year improvement. IBM’s non-GAAP EPS increased 25% year-over-year to $1.40. The company had $9.93 billion in cash and cash equivalents as of March 31, 2022.
Analysts expect the company’s EPS to improve 22.2% year-over-year to $9.69 in fiscal 2022, ending December 31, 2022. It surpassed Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $60.99 billion for the same fiscal year represents a 6.4% rise from the prior-year period. The company’s EPS is expected to grow at a 13% rate per annum over the next five years.
The stock’s 1.08x non-GAAP forward PEG is 21.8% lower than the 1.38x industry average. In terms of forward Price/Cash Flow, IBM is currently trading at 10.23x, 40.2% lower than the 17.11x industry average.
IBM’s trailing-12-month gross profit margin, EBITDA margin, and levered free cash flow margin are 54.5%, 20.8%, and 8.6%, respectively. The stock gained 4.1% last week to close Friday’s trading session at $137.67.
IBM’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Value and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for IBM’s Sentiment, Growth, Momentum, and Stability here.
IBM is ranked #23 of 81 stocks in the Technology - Services industry.
Broadcom Inc. (AVGO)
AVGO designs, develops, and supplies a range of analog and digital semiconductor connectivity solutions and infrastructure software solutions. The company develops semiconductor devices, focusing on complex digital and mixed signal complementary metal-oxide-semiconductor-based devices and analog III-V-based products. Its products are used in data center networking, home connectivity, broadband access, telecommunications equipment, smartphones, and base stations.
On April 12, 2022, AVGO announced sample availability of its complete end-to-end chipset solutions for the Wi-Fi 7 ecosystem, spanning Wi-Fi routers, residential gateways, enterprise access points, and client devices. As the demand for high-performance Wi-Fi continues to grow, driven mainly by pandemic-led changes in lifestyle, these Wi-Fi 7 chips more than double the speed of Wi-Fi 6 and 6E solutions while simultaneously delivering reliable low-latency communications and extended range. This should help AVGO gain wide recognition across the industry.
For its fiscal year 2022 first quarter ended January 31, 2022, AVGO’s net revenue increased 15.8% year-over-year to $7.71 billion. The company’s non-GAAP gross profit came in at $5.82 billion for the quarter, up 19.4% from the prior-year period. Its non-GAAP operating income came in at $4.66 billion, representing a 23.2% rise from the prior-year period. While its non-GAAP net income increased 25.8% year-over-year to $3.74 billion, its non-GAAP EPS increased 26.9% to $8.39. As of January 31, 2022, the company had $10.22 billion in cash and cash equivalents.
Analysts expect the stock’s EPS to improve 26.8% year-over-year to $35.52 for fiscal 2022 ending October 31, 2022. The company surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $31.96 billion for the quarter, representing a 16.4% rise from the prior-year period. AVGO’s EPS is expected to grow at a 14.7% rate per annum over the next five years.
The stock’s 1.01x non-GAAP forward PEG is 26.6% lower than the 1.38x industry average. In terms of forward Price/Cash Flow, AVGO is currently trading at 14.70x, 14.1% lower than the 17.11x industry average.
AVGO’s trailing-12-month gross profit margin, EBITDA margin, and levered free cash flow margin are 74.5%, 55%, and 41.8%, respectively. Last week, the stock gained 4.6% to close Friday’s trading session at $580.10.
AVGO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Growth, Sentiment, and Quality. Click here to see the additional ratings for AVGO (Value, Stability, and Momentum).
The stock is ranked #8 in the Semiconductor & Wireless Chip industry.
ON Semiconductor Corporation (ON)
ON manufactures and sells semiconductor components for various electronic devices worldwide. The company operates through three segments ─ Power Solutions Group (PSG); Advanced Solutions Group (ASG); and Intelligent Sensing Group (ISG). It serves OEMs, distributors, and electronic manufacturing service providers.
On March 21, 2022, ON introduced the new NCP1681, its latest mixed-signal controller dedicated to bridgeless totem pole Power Factor Correction (TP PFC) topology. Building upon the success of the NCP1680, which is suited for designs up to 350 W, the new controller extends the power capability into the kilowatt range. This enables customers to enhance the efficiency of their design while reducing design time and cost, thereby delivering solutions to the market quickly.
ON’s revenue for its fiscal 2022 first quarter ended April 1, 2022, increased 31.3% year-over-year to $1.95 billion. The company’s non-GAAP gross profit came in at $961.30 million, representing an 84.4% rise from the prior-year period. Its non-GAAP operating income came in at $658.50 million, up 235% from the year-ago period. While its non-GAAP net income increased 255.9% year-over-year to $538.50 million, its non-GAAP EPS increased 248.6% to $1.22. The company had $1.65 billion in cash and cash equivalents as of April 1, 2022.
Analysts expect the company’s EPS to reach $4.86 for fiscal 2022 ending December 31, 2022, representing a 64.7% rise from the prior-year period. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $7.95 billion for the same fiscal year represents a 17.9% year-over-year improvement. ON’s EPS is expected to grow at a 20.8% rate per annum over the next five years.
ON’s 0.50x non-GAAP forward PEG is 64.1% lower than the 1.38x industry average. In terms of forward Price/Cash Flow, ON is currently trading at 8.90x, 48% lower than the 17.11x industry average.
ON’s trailing-12-month gross profit margin, EBITDA margin, and levered free cash flow margin are 43.8%, 34%, and 11.3%, respectively. Last week, the stock gained 5.8% to close Friday’s trading session at $52.41.
The stock’s strong fundamentals are reflected in its POWR Ratings. ON has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Growth and a B grade for Value. Click here to see the additional ratings for ON (Momentum, Quality, Stability, and Sentiment).
ON is ranked #22 in the Semiconductor & Wireless Chip industry.
MCHP shares were trading at $64.43 per share on Monday afternoon, down $3.13 (-4.63%). Year-to-date, MCHP has declined -25.73%, versus a -15.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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