Semiconductor stocks have been a mixed bag.
Semiconductor stocks have been some of the hottest stocks in the tech sector in recent years, with popular stocks such as Nvidia Corp. (ticker: NVDA) and Advanced Micro Devices (AMD) up more than 1,000 percent each in the past three years. But the higher share prices climb, the more important stock selection becomes. Data from Bank of America indicates active fund managers have been dialing back their exposure to the semiconductor group in the past year, but a handful of stocks are still widely held. Here's a look at the nine most popular semiconductor stocks among fund managers.
Texas Instruments (TXN)
Texas Instruments stock may not have kept pace with Nvidia or AMD in the past few years, but its shares are up a respectable 21 percent over the past year. Bank of America analyst Vivek Arya says Texas Instruments' diversification and history of consistent execution make it a top pick for long-term investors, and fund managers seem to agree. TXN stock is held in 33.3 percent of actively-managed funds, making it the most popular semiconductor stock among fund managers. Bank of America has a "buy" rating and $133 price target for TXN stock.
Broadcom has had a difficult 2018. Its potential merger with Qualcomm (QCOM) was blocked by the U.S. government, and Broadcom's $18.9 billion buyout of CA Technologies (CA) has been widely criticized. Arya is among the critics. He says the CA acquisition will be an unwanted distraction and will dilute Broadcom's top-line growth. With AVGO stock down 3.4 percent in 2018, fund managers are betting on a comeback. AVGO stock is held in 31.3 percent of active funds. Bank of America has a "buy" rating and $300 price target for AVGO stock.
Intel Corp. (INTC)
Intel is not among the high-flyers in the semiconductor group in 2018. But with semiconductor stock valuations soaring, fund managers seem to still prefer Intel's relative safety and 2.5 percent dividend. Intel is one of the most widely-held semiconductor stock among fund managers, with 30.6 percent of all funds owning some INTC stock. However, Arya says Intel's 10-nanometer processor delays and its chip security issues have created opportunities for competitors such as AMD. Bank of America has a "neutral" rating and $56 price target for INTC stock.
Nvidia Corp. (NVDA)
Fund managers' top three semiconductor holdings are all on the conservative side, but Nvidia is the exact opposite. NVDA stock is the quintessential tech growth stock. In the past five years, Nvidia's revenue is up 190 percent, and its share price is up 1,740 percent. Despite its lofty forward earnings multiple of 36.2, Arya says the recent launch of Nvidia's next-generation Turing architecture will keep the growth engine going for the foreseeable future. NVDA stock is held in 28.3 percent of active funds. Bank of America has a "buy" rating and $360 price target for NVDA stock.
Qualcomm investors have also been riding a roller coaster of news in 2018. After a potential buyout by Broadcom was blocked in March, Qualcomm terminated its own bid for NXP Semiconductors (NXPI) in July. Instead of pursuing growth via merger, Qualcomm instead decided to invest $30 billion in a stock buyback program, a move which analyst Tal Liani says is the right call for investors. QCOM stock is held in 28 percent of active funds. Bank of America has a "buy" rating and $75 price target for QCOM stock.
Applied Materials (AMAT)
Applied Materials stock struggled in 2018, declining 23.9 percent on the year. However, in the company's most recent earnings report, it reiterated its fiscal 2020 earnings per share and revenue guidance, and Arya says investors should be looking to buy the stock on the dip. Arya says Applied Materials' product diversification, technical prowess, top-tier support/service offerings and massive scale make it a key beneficiary of secular semiconductor market growth. AMAT stock is held in 27.8 percent of active funds. Bank of America has a "neutral" rating and $49 price target for AMAT stock.
Analog Devices (ADI)
Arya says Analog Devices stock has several positive long-term catalysts. Roughly half of Analog Devices' sales are industrial, making it a key supplier for the digitization of global industry, a trend Arya calls Industry 4.0. In addition, Arya says Analog Devices has major exposure to the massive 5G wireless network transition. Finally, Analog is deleveraging its balance sheet and will soon resume its $2 billion share buyback program. ADI stock is held in 17.9 percent of active funds. Bank of America has a "buy" rating and $112 price target for ADI stock.
Lam Research Corp. (LRCX)
Lam Research stock is another semiconductor leader that has been left out of the 2018 rally. Shares are down 5.6 percent this year, but Arya says the company's 20 percent quarter-over-quarter decline in shipments in the September quarter will likely mark the bottom of the current cycle. Arya says Lam has maintained gross margins in the mid-40s and plans to complete its $4 billion buyback program over the next nine months. LRCX stock is held in 17 percent of active funds. Bank of America has a "neutral" rating and $200 price target for LRCX stock.
Micron Technology (MU)
Analyst Simon Woo says there are three reasons to like Micron Technology stock. First, earnings have been on the rise thanks to higher average sales prices in memory hardware. Second, Micron has been removing risk by using cash flow to deleverage its balance sheet and buy back stock. Finally, Woo says management's long-term product strategies should help protect MU stock from the deep cyclical downturns it has experienced in the past. MU stock is held in 14.7 percent of active funds. Bank of America has a "buy" rating and $85 price target for MU stock.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at firstname.lastname@example.org.