Three semiconductor stocks rise thanks to latest US financing

Close-up 3D rendering of a modern GPU card

Key points

  • The US government is preparing to distribute its new subsidies for the semiconductor and chip industries, preparing new demonstrations.
  • Some names immediately appear as clear candidates to receive a good portion of these grants, as they are bringing manufacturing efforts back to the nation.
  • Pricing errors become apparent to investors looking to achieve above-average growth at below-average prices.
  • 5 titles we prefer to those of Samsung Electronics

There is a little-known conflict in the world today that is escalating and could quickly spiral out of control. While governments and nations used to fight over raw materials or trade routes, today’s fights are only about who has access to the world’s latest chip and semiconductor technologies. Now that the US government is involved, it may be time to prepare for a big price swing.

After imposing some restrictions on China on the type of semiconductor technology that could be shipped to the country, the United States now recognizes the growing risk that Taiwan could be invaded, putting one of the biggest names in the industry at risk. Taiwan semiconductor manufacturing New York Stock Exchange: TSM it is a crucial supplier of most of the products the United States needs.

This is why the United States is looking to export chip manufacturing domestically. By March this year, the government may announce several grants to enable increased production for similar companies Intel NASDAQ: INTC and even Samsung electronics OTCMKTS: SSNLF. Here you will come up with a sensible strategy to align your portfolio with this new development.

Off to the races

In 2022, the US government launched the Chips Act initiative, which granted up to $39 billion for critical semiconductor stocks to build factories nationwide. This decision was made after the entire world suffered from a chip shortage during the peak months of the COVID-19 pandemic, never again, they said.

Now that the pressure is back, the world’s largest economies are in a chip race. Not only are geopolitical risks at stake, but the well-being of entire nations, since without chips today not much can be done. Without going into the details of what this might mean, there is a simpler way to deal with the situation.

There is no set timeline for the announcement. However, according to Bloomberg Intelligence, it could happen as early as March 7, right before President Biden’s State of the Union address. Considering that all the major names in semiconductor have committed to investing up to $230 billion combined in onshoring manufacturing, the government seems more inclined to step up to the plate.

If these developments weren’t enough for you, check this out. Analysts at The Goldman Sachs Group NYSE:GS have mentioned that they expect a manufacturing sector explosion in the US economy, sponsored by potential interest rate cuts proposed by the Fed this year. You can read all about the 2024 outlook report here.

Intel is leading the race toward onshore manufacturing and increased manufacturing employment, among numerous other benefits for the macroeconomy. Criticized for its initial stance of deploying billions to build factories in the states of Arizona and Ohio, that stock has attracted bears left and right in 2023.

As markets woke up to the importance of this key player in the big picture, it outperformed the broader S&P 500 index by up to 33.0% over the past twelve months.

Because some market participants don’t understand the long-term effects of the massive investment the company is making, they have been selling shares after disappointing free cash flow numbers, where a lot of capital has gone into building these fabs.

The Buffett method

As Warren Buffett said before, the market transfers money from the impatient to the patient. After selling off as much as 20.8% over the past week, Intel shares suddenly look like a clear dip buying opportunity today.

Any story can sound good on its own; however, stories without numbers are fairy tales, and you’re not here to invest in fairy tales, are you? So, here’s more concrete evidence of why this might be the case.

Looking at the semiconductor industry as a group, you’ll notice that, on average, analyst projections see earnings per share growing by 22.2% over the next twelve months. Intel and others like Samsung and Taiwan Semiconductor stand out because they are the cheapest large-cap names and are expected to have the most growth.

Analysts rewarded Intel shares with EPS growth of up to 29.5%, more than 7.0% above the industry average. However, this stock trades at a 22.1% discount to its average P/E ratio. Valued at 23.2x, it sits well below the 29.8x average for the rest. But wait, there’s more.

Taiwan Semiconductor also expects growth of 22.2%, in line with the average. However, this stock is also discounted 36.9% at its P/E of 18.8x compared to the industry average of 29.8x. Shouldn’t it at least have a fair valuation, given that it grows at par? Perhaps its 18.0% post-earnings rally can serve to awaken this fact.

Last but not least, Samsung, which is targeting a 34.4% EPS jump this year. As the least covered of the three, markets may overlook a formidable rally candidate with this name, which will receive a few billion in grants upon announcement.

Trading at a P/E of 11.8x today puts Samsung shares at a steep 60.3% discount to the rest of the group; let’s talk about value!

Before you consider Samsung Electronics, 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 Samsung Electronics wasn’t on the list.

While Samsung Electronics currently has a “buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here

A guide to hedging short and high interest stocks

MarketBeat analysts just released their top five short stocks for February 2024. Find out which stocks have the most short interest and how to trade them. Click the link below to see which companies are on the list.

Get this free report

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *