Harry Domash's Winning Investing

Time to Be In The Chips

Thanks to shrinking computer sales and slowing Smartphone sales growth, semiconductor chipmakers had been in slow or no-growth mode for some time. But now, that’s changing, at least for certain players. Here’s why.

Self-driving cars will be here sooner than anyone expects, and when that happens, they will be packed with computer chips.

Surprisingly, at least to me; no matter whether you’re talking about Hong Kong or Pittsburgh, advanced factory automation systems are just starting to come into wide use, which translates to another promising growth sector.

 The same arguments apply to the “Internet of Things,” which refers to automation and entertainment products for home and small business use.

Obviously, I’m not the only one that has noticed those factors and chipmakers, along with most tech stocks were on a roll earlier this year. However, for reasons unrelated to their long-term outlooks, most tech stocks dropped around five or ten percent last month. That downdraft created a buying opportunity, at least in my view. Even better, many chipmakers pay high-dividends, which means that you’ll be paid to wait if these stocks don’t take off as soon as I expect.

Here are four chipmakers worth considering.

Cypress Semiconductor (CY): Cypress has traditionally focused on producing programmable computer systems-on-chip, and memory products. However, in 2015, Cypress acquired Spansiona, a leading flash memory producer as well as a major player in the industrial and auto markets, most significantly a leader in advanced driver assistance systems. Then, last year, Cypress acquired Broadcom’s Wireless 'Internet of Things' business, a segment that produces consumer products including wearable electronics and home and business automation systems.  Cypress pays dividends equating to a 3.2% yield.

Maxim Integrated Products (MXIM): Maxim is a leading maker of analog chips. Unlike digital, analog chips are used to process real world information such as sound, light, temperature, etc. For instance, in cell phones, analog chips convert your voice to digital signals. The hot semiconductor markets that I’ve already mentioned, automotive, factory automation, and controlling household items (Internet of Things), all require analog chips. Dividend yield is 2.9%.

Qualcomm (QCOM): Qualcomm manufactures and licenses integrated circuits and system software used in communications, networking, application processing, multimedia, and global positioning system products. Qualcomm is in the process of acquiring Netherlands-based NXP Semiconductors, a big player in automotive chips. Qualcomm is currently involved in a big legal squabble with Apple, which has pressured its share price. Eventually, the two firms will probably settle, and that news would lift its share price. Dividend yield 2.3%.

Texas Instruments (TXN): Texas Instruments produced the first silicon transistor in 1950, the first transistor radio in 1954, and invented the integrated circuit in 1958. These days, TXN mainly produces analog chips and embedded chips used to control devices such as electronic equipment, motors, etc. Both categories are required to implement all three of the currently hot chip applications. TXN pays a 2.8% dividend yield.

All four chip stocks mentioned will report June quarter results in late July or August, and all will likely announce strong numbers, which would spike their share prices. If you’re considering buying, sooner is better.

Published 7/11/17

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