Semiconductors are the silicon backbone of the digital revolution. Demand for chips is variable though, meaning that corporate inventory levels and sentiment can significantly impact the industry. Uncertainty surrounding these factors has hurt semiconductor stocks over the past six months as they have pulled back by 7.5%. This drawdown is a far cry from the S&P 500’s 9% ascent.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here is one semiconductor stock boasting a durable advantage and two best left ignored.
Two Semiconductors Stocks to Sell:
Texas Instruments (TXN)
Market Cap: $164 billion
Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ:TXN) is the world’s largest producer of analog semiconductors.
Why Is TXN Not Exciting?
- Sales tumbled by 11.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 5.8 percentage points
- Free cash flow margin dropped by 28.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $183.24 per share, Texas Instruments trades at 30.5x forward price-to-earnings. If you’re considering TXN for your portfolio, see our FREE research report to learn more.
Power Integrations (POWI)
Market Cap: $3.36 billion
A leading supplier of parts for electronics such as home appliances, Power Integrations (NASDAQ:POWI) is a semiconductor designer and developer specializing in products used for high-voltage power conversion.
Why Should You Dump POWI?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Efficiency has decreased over the last five years as its operating margin fell by 10.2 percentage points
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
Power Integrations’s stock price of $59.99 implies a valuation ratio of 39.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why POWI doesn’t pass our bar.
One Semiconductors Stock to Buy:
Monolithic Power Systems (MPWR)
Market Cap: $33.45 billion
Founded in 1997 by its longtime CEO Michael Hsing, Monolithic Power Systems (NASDAQ:MPWR) is an analog and mixed signal chipmaker that specializes in power management chips meant to minimize total energy consumption.
Why Will MPWR Outperform?
- Market share has increased this cycle as its 10.9% annual revenue growth over the last two years was exceptional
- MPWR is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its growing cash flow gives it even more resources to deploy
- Industry-leading 46.6% return on capital demonstrates management’s skill in finding high-return investments
Monolithic Power Systems is trading at $691 per share, or 41.1x forward price-to-earnings. Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
