Skyworks Semiconductors: earnings are very obvious

    Skyworks Semiconductors stock price

Key points

  • The industry appears to be recovering from shortages experienced during the COVID-19 pandemic.
  • Here’s what it means in the face of a potential Fed interest rate cut: Which stocks are poised to do well and which aren’t.
  • In this mix, one name stands out like a sore thumb to offer you fantastic value at a discounted price.
  • 5 stocks we like better than the VanEck Semiconductor ETF

The market, and most investors and traders, had become bearish on semiconductor and chip stocks. You can’t really blame them, though – maybe this has affected you too – since during the COVID-19 pandemic, semiconductor shortages have been the order of the day, affecting several industries and heavily affecting those who are directly exposed to the sector.

Today it seems that the supply chain and manufacturer names are back to normal, so it’s just a matter of restoring demand until stocks in the VanEck Semiconductor ETF NASDAQ: SMH they start to attract a lot of those investors into the space. Even Wall Street could jump in soon, especially afterward Taiwan semiconductor manufacturing New York Stock Exchange: TSM reported an explosive quarter.

That stock is up nearly 20.0% since the announcement and has opened a glass jar for others in the sector to begin to gain some investor interest. Specifically, names like ASML NASDAQ:ASML its earnings release this week and markets are betting on a similar rally after a likely beat, but more on that later.

Bigger picture at play

When the biggest names in Wall Street investing speak, investors rarely listen unless they know exactly what they’re looking for in boring research pages and published economic reports. Today’s homework was made to save you time and guide you directly to what matters most.

Analysts at The Goldman Sachs Group NYSE:GS have released their macroeconomic outlook report for 2024, which summarizes their expectations for a turnaround in the US manufacturing sector. Why are they so confident? The Fed’s new plan to cut interest rates could be a start.

Since the value of a currency is pegged to underlying interest rates, lower rates in the United States could lead to a decline in the dollar index, but this is not necessarily bad news. You see, a weaker dollar makes American exports even more attractive to all other nations, and international companies will see the economic benefit of this trend.

It is provided as Intel NASDAQ: INTC, which sold off by more than 10.0% in just a few days. Its exposure to sales (and, increasingly, manufacturing) is heavy domestically. Electronics companies that depend on a strong U.S. consumer will likely see headwinds ahead Logitech NASDAQ: LOGI and its decline as another example.

So now there are two different camps in play: either you bet on American semiconductor names that are starting to show cracks in their prospects in the face of an expected dollar decline, or you can side with international companies that can mitigate these effects distributing their sales. and costs in other regions.

The market takes the side of the latter, for reasons and analyzes that you will see shortly. Starting from the price action, you can see that Taiwan Semiconductor has outperformed Intel shares by up to 25.0% over the past month. A start to the year like this can only mean that the big names are already placing their bets.

Read the tape

By spreading the names of semiconductors as a group, this idea begins to gain traction. At the bottom of the ratings list (the breakdown of the list will be here in a second), you can find names like Skyworks Solutions NASDAQ:SWKS offer shareholders a significant discount. Others like it Broadcom NASDAQ: AVGO offering a not so great deal.

By drawing conclusions from the forward P/E ratio, which is how the market values ​​tomorrow’s expected earnings, you can see why this dynamic might work.

Skyworks shares trade at a forward P/E of 12.8x, a 41.1% discount to the industry’s average multiple of 21.8x. The saying “It has to be cheap for a reason” often applies to stocks that trade cheaply, but this may be an exception. Why? Analysts expect earnings per share growth of 21.7% over the next twelve months.

The rest of the industry is expected to deliver an average EPS growth rate of just 16.2%, so why is the market discounting Skyworks stock? For starters, it’s not a popular name; secondly, it is mistakenly believed that its sales are also concentrated on American markets only when, in reality, they are scattered throughout Europe and Asia.

Would you say Broadcom is the most popular stock in this space? Some would agree, and that may be why the market is valuing that stock at 78.5% higher than Skyworks with its forward P/E multiple of 22.9x. However, the stock is only set to grow its EPS by 19.2%.

This must be why these same analysts see a 10.9% upside in their Skyworks price targets when they point to a net 18.5% downside for Broadcom’s price targets. It would seem that the savvy investor – like you – could benefit from this situation today.

Before you consider the VanEck Semiconductor ETF, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and VanEck Semiconductor ETF wasn’t on the list.

While the VanEck Semiconductor ETF currently has a “hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here

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