The continued recovery in the global economy is leading to a gradual strengthening of the technology sector, with further improvement expected in 2015. Other drivers included the increasing penetration of semiconductor devices into new applications, the proliferation of mobile devices, the growing importance of Internet services and cloud computing coming of age.
The first half of 2014 saw mainstream adoption of cloud computing by enterprises. The rapidly growing amount of data, complex infrastructure and the inability to constantly scale resources at regular intervals compelled enterprises to turn to cloud computing vendors.
Semiconductors are playing a crucial role in developing the Internet of Things (IoT) technology for mainstream adoption. Apple (AAPL) and Google (GOOGL) — the developers of the two most popular ecosystems (iOS and Android) — are vying with each other to grab a greater share thus leading to faster development of the market. Both companies are broadening their product line-ups, like Google is expanding into computerized eyewear, Glass, while Apple is adding management tools to its upcoming iPhone operating system.
According to Forrester’s data, the global technology market is expected to grow 5.5% in 2014, slightly better than the 4.3% improvement seen in 2013. The research firm expects IT growth rate of 6.9% in 2015.
Nevertheless, the broad-based growth has made it significantly difficult for investors to pick a sure-shot winner. Therefore, they could consider the following semiconductor stocks, all of which carry a Zacks Rank #1 (Strong Buy). They have all seen positive estimate revisions of late:
Planar Systems Inc. (PLNR)
Headquartered in Beaverton, OR, Planar Systems is a digital display manufacturing company which offers electronic display products and systems for the display signage market and commercial and industrial display markets. Its products are sold to retailers, educational institutions, government agencies, businesses, utilities and energy firms, and home theater enthusiasts under the Planar, Clarity and Runco brands primarily in North America, Europe and Asia.
Revenue growth, solid financial conditions and reasonable debt levels position the company favorably. Strong product demand, coupled with improving manufacturing throughput, has significantly boosted the company’s revenues and profits in 2014.
Also, the stock has seen a cumulative upward earnings estimate revision of 100% for the current quarter as well as the fiscal year, over the past two months. The Zacks Consensus Estimate for revenues increased 9.6%, while that for earnings per share jumped a significant 60.3% for fiscal 2015 from the prior year.
Additionally, it has delivered a massive average earnings surprise of nearly 209% over the past four quarters. Planar Systems has gained about 185.3% year-to-date.
RF Micro Devices Inc. (RFMD)
RF Micro Devices manufactures radio frequency (RF) chips used in smartphones and several other products. These RF chipsets support several frequency bands, from the earlier 2G networks to the latest 4G LTE.
This technology firm recorded double-digit EPS growth last year. RF Micro’s recent performance has been robust with growing adoption of 4G LTE and the continued strength in the RF content market driving growth in its major end-markets. Its merger with TriQuint Semiconductor (TQNT), expected to close on Dec 31, will create a new entity named Qorvo Inc. This new entity will bring all the critical RF components essential for making mobile devices under the same banner, thereby creating an undisputed market leader boasting a diversified product portfolio.
Over the past two months, RF Micro has seen estimates for the current year rise about 15.4%. Additionally, it has delivered an average earnings surprise of nearly 25.2% over the past four quarters. The Zacks Consensus Estimate reflects 14.5% year-over-year growth in revenues for fiscal 2015. RF Micro has gained about 236.1% year-to-date. All these factors underscore the company’s potential to outperform.
Skyworks Solutions Inc. (SWKS)
Headquartered in Woburn, MA, Skyworks Solutions is an innovator of high performance analog semiconductors and serves automotive, broadband, wireless infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone and tablet applications markets. They are probably most recognized as the supplier of RF chips in Apple iPhones and other handset and device makers.
Strong underlying demand in the mobile Internet sector, backed by market share gains and product launches supported growth. The company is also expanding its footprint in complementary new verticals such as medical, automotive, military and industrial markets, and continues to gain traction in adjacent verticals as well.
Over the past two months, the stock has seen estimates for the full year increase about 11.2%. This semiconductor stock has delivered positive earnings surprises in the trailing four quarters and is now up around 169.8% year-to-date. The Zacks Consensus Estimate reflects year-over-year increase of 43.4% for earnings and 30.4% for revenues for fiscal 2015.
Conclusion
As computer technology advances at faster and faster speeds, demand for computer components and networks continues to grow. The upcoming global wave of mobile phone upgrades to 4G will increase the demand for RF content, therefore providing these technology companies ample opportunities to boost top-line growth in the coming years. Big Data, IoT and Bring Your Own Device are the other major trends. Investments in new technologies like flash storage and faster processing chips are long-term growth drivers.
However, investors should carefully consider what each company has to offer and decide if they are a good fit for the high-risk portion of their portfolio. All these stocks could be volatile, but given the rebounding economy, improving technology fundamentals and recent earnings estimate revisions, these could be potential outperformers in the weeks ahead.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment