October 4, 2023

Wall Street’s top analyst suggests 2 semiconductor stocks to buy – here’s why they stand out

Today, investors have access to vast amounts of information that can help point the best stocks to pick up. So much information, in fact, that it often leads to overload and confusion instead of sending a clear signal.

Therefore, it may be best to stick to a straight forward regimen and let the stock picking experts take the lead. And on Wall Street, Jeffries analyst Mark Lipacis is currently the best of the bunch. According to TipRanks, a platform that tracks and measures the performance of anyone who provides online financial advice, 72% of Lipacis recommendations have been successful in the past year. At the same time, his choices have yielded an average return of 29.7%. These stats have positioned the 5-star expert as the best analyst on the street.

Recently, Lipacis has been writing positive reviews for a few semiconductor stocks, believing they’re ready to move on from here. So let’s see what it is about these names that make them stand out from the pack.

Global Foundries (GFS)

The first semiconductor stock to look at is GlobalFoundries, a major player in the US chip industry with a large multinational presence. Based in Malta, New York, the company has operations in the US, EU and East Asia, with a large footprint in Singapore. The company’s products can be found in smart mobile devices, in IoT applications, in personal computing and in the automotive, aerospace and defense industries.

Unlike many US-based chip makers, GlobalFoundries has maintained a strong presence in its home country – with design and R&D centers on the West Coast and manufacturing and foundry facilities in the Northeast. This gives the company a built-in advantage at a time of rising geopolitical tensions with China – a major technology competitor – over Taiwan – the world’s largest chip exporter. In addition, GlobalFoundries is proactive in protecting its intellectual property and recently filed a lawsuit against technology and business giant IBM for alleged misappropriation of trade secrets.

A home field advantage and safe secrets are good to have, but investors want to see results. GlobalFoundries’ 1Q23 numbers had some good ones, but not all of the news pleased investors.

Quarterly revenue, $1.84 billion, was down 5% year-over-year, but came in just above forecast, beating it by $10 million. In the end, GlobalFoundries’ non-GAAP earnings of 52 cents per share were 10 cents higher year-over-year and better than estimates by 3 cents. Also of note, the company reported liquid reserves totaling $3.23 billion.

However, the stock fell after the earnings release. Investors were concerned about an adjusted EBITDA miss ($655 million versus analyst expectations of $694.7 million) and the simultaneous announcement of management team changes, with new people taking over as CFO and CBO.

Top analyst Mark Lipacis, for his part, is not concerned. In assessing the pressure, Lipacis noted the company’s onshore footprint in the U.S. as a key advantage, writing: “We view GFS as the leading trailing-node, analog/mixed-signal foundry capitalizing on demand to the Internet of Things and customers moving to a fab-lite model. We continue to view GFS as a beneficiary of the nationalization of the supply chain trend. As a result, we expect GFS to maintain a premium valuation multiple.”

Based on this stance, Lipacis rates GFS shares a buy and sets a $73 price target to imply 22% upside potential over a year.

The top Wall Street analyst is hardly an outlier here. GFS stock has 12 recent analyst ratings, including 11 Buys to 1 Hold, for a Strong Buy consensus rating. (To see GFS Stock Forecast)

Texas Instruments (TXN)

Next up is Texas Instruments, a Dallas-based company with a long history in the engineering field. The company was founded in 1930 as an electronics maker and by the 1060s had become a strong name in consumer electronics, known for its popular lines of calculators and the educational toy franchise ‘Speak & Spell’. Today, the company is known as a major supplier of analog technology, electronics and processor chips to the industrial economy, and is a major supplier to high-tech needs in both the automotive and aerospace industries. TI still maintains a foothold in education and has several graphing calculators on the market.

All this is the background of one of the world’s largest technology companies. TI has a market cap of $155 billion and generated just over $20 billion in revenue last year. The company also has a strong track record of returning value to shareholders. Since 2004, the company has posted 19 straight years of dividend increases while also cutting its outstanding shares by 47%. During the same period, TI also posted 11% annual growth in free cash flow.

However, in its most recently reported quarter, 1Q23, TI showed mixed results. On the top line, revenue of $4.38 billion was nearly 11% lower than in 1Q22, but $10 million better than expected. Bottom-line earnings per share, $1.85, were down from $2.18 in the same period last year but beat forecast by 7 cents, or 3.6%.

That said, the company came loose with its guide. The outlook for second-quarter revenue was between $4.17 billion and $4.53 billion, against the consensus figure of $4.46 billion. On the earnings front, the Q2 outlook calls for earnings per share between $1.62 and $1.88; the consensus figure was $1.87.

Looking under the hood at TI after earnings release, Mark Lipacis remains optimistic. He notes the weaker year-over-year performance, but is still confident about the long term.

“We marked TXN as our top large-cap analog pick on the road to earnings because it was one of the few analog companies to see material fall to CY23 EPS estimates (~20%), and it is a stock in the bottom quartile YTD…We continue to favor TXN as it ships below the trendline, and we believe the internal manufacturing strategy will lead to market share gains…We remain buyers after the pressure,” Lipacis noted.

As such, Lipacis reiterated a buy rating and $215 price target, indicating room for a 22% share valuation over the next 12 months.

Big tech has always caught the eye of Wall Street, and Texas Instruments has 19 analyst ratings on our file—including 8 Buys, 9 Holds, and 2 Sells—for a moderate buy consensus rating. (To see TXN inventory forecast)

To stay up to date with Mark Lipacis’s latest ratings and price target, visit his profile page on TipRanks.

Disclaimer: The opinions expressed in this article are solely those of the recommended analyst. The content is for informational purposes only. It is very important to do your own analysis before making an investment.

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