In this article, we will take a look at the 10 best semiconductor stocks to buy in 2021. You can skip our analysis of the semiconductor industry and go to 5 Best Semiconductor Stocks to Buy in 2021.
Semiconductors form the basis of the modern technology revolution. They power our smartphones, wristwatches, gaming devices, computers, cars and appliances. The demand of semiconductor devices is skyrocketing worldwide as their applications are increasing. Global automakers are facing a dire shortage of semiconductors worldwide. Data firm IHS Markit estimates that the global auto industry would produce about 700,000 fewer-than-expected cars in the first three months of 2021 due to the chips shortage. Car companies are losing millions each week because of the shortage as they have to idle their plants because of insufficient semiconductors. GM is expected to take a $1.5 billion to $2 billion hit on its net income in 2021 because of this shortage in 2021.
Last month, President Biden signed an executive order requiring companies to ensure they have plans to avoid shortages of essential items like semiconductors.
Over the last decade, the global semiconductor industry has grown substantially from $283 billion revenue in 2010 to $442 billion revenue in 2020, driven by demand from computing systems, such as PCs & servers, from electronics such as smartphones & gaming devices and from growing popularity of Internet of things in the automotive & industrial markets.
The automotive and industrial end-markets have been significantly impacted by COVID-19, which created massive manufacturing and sales disruptions, impacting supply chains during 2020. Barring the supply-chain issues, the semiconductor industry proved it's resilient in the middle of a pandemic. According to a recent report by IDC, the semiconductor industry’s revenue jumped 5.4% in 2020 on a year-over-year basis despite the impact of the coronavirus crisis, driven by solid demand from remote learning, work-from-home trends and Cloud. In 2021, the semiconductor industry is expected to grow by 7.7% on a year-on-year basis.
The semiconductor industry isn't the only casualty of the rising volatility in the financial markets. Even the so-called investing gurus are struggling to understand the changing dynamics. The hedge fund industry's reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017. Between March 2017 and February 5th 2021 our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Keeping all these points in mind, let’s start our list of the 10 best semiconductors stock to buy in 2021.
Number of Hedge Fund Holders: 18
Headquartered in Austin, Texas, Silicon Laboratories Inc. is a leading fabless semiconductor company. It provides semiconductors and other silicon devices to automotive, industrial automation, Internet of Things infrastructure and consumer markets in the United States, China, and other countries. In February 2021, the company beat Q4 estimates and posted a record revenue. Additionally, management expects accelerating growth for 2021, driven by strong demand in markets such as portable medical, smart home, industrial, automation, solar energy and electric vehicles.
As of the end of the fourth quarter, 18 hedge funds in Insider Monkey’s database of 887 funds held stakes in SLAB, compared to 26 funds in the third quarter. Millennium Management is the biggest stakeholder in the company, with 17.3 million shares, worth $23.9 million.
Number of Hedge Fund Holders: 72
Headquartered in HsinChu, Taiwan, Taiwan Semiconductor Manufacturing Company Limited manufactures and supplies semiconductors and integrated circuits to communications, consumer, and industrials markets. In the fourth quarter, the company witnessed strong demand for its 5-nanometer technology, led by 5G smartphone launches and HPC-related applications. It also guided Q1'21 above consensus. Given the industry trends of 5G and HPC-related applications, the company's management expects higher level of capital investment in the coming years. However, the management said that the company remains committed to a sustainable cash dividends on both an annual and quarterly basis despite high level of capital spending in 2021.
According to our database, the number of TSM’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 72 hedge funds that hold a position in TSM compared to 67 funds in the third quarter. The biggest stakeholder of the company is Fisher Asset Management, with 27.6 million shares, worth $3 billion.
In their Q4 2020 investor letter, Bonsai Partners highlighted a few stocks and Taiwan Semiconductor Manufacturing Co Ltd (NYSE:TSM) is one of them.
Here is what Bonsai Partners said:
"Taiwan Semiconductor is the world’s largest outsourced foundry of logic semiconductor chips. TSMC’s shares appreciated 34.5% during the quarter. Taiwan Semiconductor continues to see unprecedented demand, albeit at a slightly less rapid growth rate than earlier in 2020. At the time of writing, TSMC announced strong fourth-quarter results and staggering growth in their expected capital expenditures for 2021 – growing from $17B in 2020 to $25B to $28B in 2021. Forward-looking capital expenditures are the key leading indicator of their medium-term growth rate expectations, and I expect TSMC management will continue to earn excellent returns on these colossal investments.
TSMC’s capital expenditure growth is likely due to investment in their new U.S. manufacturing footprint, rapid investment in their cutting edge process technology, as well as generally high levels of customer demand. Lately, we’ve seen semiconductor shortages in some of their less advanced process technologies, emphasizing the current state of the semiconductor supply-demand imbalance.”
Number of Hedge Fund Holders: 58
Headquartered in Wilmington, Massachusetts, Analog Devices, Inc. specializes in data conversion products, signal processing technologies and power management applications. In February, the company posted a $50 million beat in revenue and a $0.12 beat in EPS for its fiscal first quarter, driven by broad-based growth across all end markets. Analog Devices declared an 11% increase in quarterly dividends to $0.69 per share, marking the 18th increase over the last 17 years. In July 2020, the company announced the acquisition of Maxim Integrated Products Inc (NASDAQ: MXIM), which is expected to close this summer and management is confident that 2021 will be a transformative year for the company and the transaction will be accretive to free cash flow and adjusted EPS at the close.
As of the end of the fourth quarter, 58 hedge funds in Insider Monkey’s database of 887 funds held stakes in ADI, compared to 52 funds in the third quarter. Generation Investment Management is the biggest stakeholder in the company, with 5.9 million shares, worth $865 million.
Number of Hedge Fund Holders: 45
Headquartered in Chandler, Arizona, Microchip Technology Incorporated develops, manufactures and sells microcontroller, analog and Flash-IP integrated circuits for automotive, industrial, aerospace, and communications markets in the Americas, Europe, and Asia. The company posted in-line revenue and a $0.04 beat in EPS in its fiscal third quarter, driven by continued strength in the automotive, industrial and consumer markets. Over the last 10 quarters since it closed the Microsemi acquisition, Microchip has been able to grow its dividend in addition to paying down $3.24 billion of debt out of more than $8 billion debt incurred in connection with the acquisition. The company grew its dividend by 5.8% in the current quarter.
According to our database, the number of MCHP’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 45 hedge funds that hold a position in MCHP compared to 35 funds in the third quarter. The biggest stakeholder of the company is Platinum Asset Management, with 2.07 million shares, worth $286.5 million.
Number of Hedge Fund Holders: 56
Headquartered in Dallas, Texas, Texas Instruments Incorporated is a leading designer, manufacturer and seller of semiconductors to electronics designers and manufacturers globally. In January 2021, the company reported Q4'20 revenues above consensus by about $470 million and EPS above consensus by $0.51 and also issued an upside guidance for fiscal first quarter, driven by strong demand in automotive, personal electronics and the industrial markets. Texas Instruments has been able to increase its free cash flow per share at 12% annual growth and its dividends at 26% CAGR during 2004-2020 period. In addition, during the same time period, it has been able to reduce its share count by 46% via regular buybacks.
With a $6.1 billion stake in Texas Instruments, First Eagle Investment Management owns 4 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 56 hedge funds held stakes in the company as of the end of the fourth quarter, versus 55 funds in the third quarter.
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Disclosure: None. 10 Best Semiconductor Stocks to Buy in 2021 is originally published on Insider Monkey.