In this article, we will take a look at the 10 undervalued semiconductor stocks to buy now. If you want to explore similar stocks, you can also take a look at 5 Undervalued Semiconductor Stocks To Buy Now.
"Semiconductors Are Showing Really Terrific Leadership"
On April 11 Bill Baruch, president and COO of Blue Creek Capital Management, appeared in an interview on TD Ameritrade Network where he discussed the current trends in the semiconductor industry and his outlook for semiconductor stocks. Baruch thinks that inflation is cooling down and this bodes well for equity markets.
Baruch further spoke about the tech rally we have experienced so far. He talked about some of the recent gains of NVIDIA Corporation (NASDAQ:NVDA), Micron Technology, Inc. (NASDAQ:MU), Advanced Micro Devices, Inc. (NASDAQ:AMD) and noted that "semiconductors are showing really terrific leadership". Baruch noted that the focus of semiconductor stocks was not the weakness in PC demand, but instead it was Samsung's (KSE:005930) recently announced production cut. On April 7, Samsung (KSE:005930) announced that it is cutting memory chip output after the company's Q1 2023 operating profit fell to $455.5 million, the lowest since the global financial crisis. Samsung (KSE:005930) believes that cutting memory chip production by a "meaningful" level will help it restore the supply-demand imbalance within semiconductors and survive a potential downturn. Here are some comments from Bill Baruch:
"The Samsung (KSE:005930) news of cutting chip production was the focus of semiconductors and not the slowing PC demand, and I think that's because PC demand has been known to be slowing. That's a lagging number for quarter 1. Let's look ahead, when you see the inventory cycles of the semiconductors, and we're getting out of the worst of it. The focus isn't right here right now, it's the 2024, and that is really becoming a tailwind to semiconductors who wrote down those expectations in the middle of last year. Again, it's a market of have and have-nots. The stocks that have written down those expectations and the companies that have not. We're starting to see this focus into the 2024 numbers, and my reason to bring that up is that it gives the market (semiconductor market) leadership here."
Though "having the leadership within the market is extremely important", Bill Baruch noted that it has to be coupled with inflation coming down since inflation remains the Fed's top priority. As inflation cools down, the Fed can stop its hiking cycle and this will create a positive environment for semiconductors and the tech space.
Heading into 2024, Bill Baruch expects semiconductor stocks to lead the market as inflation cools down and the Fed stops tightening. In the current market environment, many semiconductor stocks have bottomed and are currently trading at attractive valuations. We have compiled a list of the best undervalued semiconductor stocks to buy now according to hedge funds. Let's discuss these stocks in detail below.
10 Undervalued Semiconductor Stocks To Buy Now
Our Methodology
To determine the best undervalued semiconductor stocks to buy now, we screened for semiconductor companies that are trading at a trailing twelve-month price-to-earnings multiple of less than 15, as of April 14. We found 18 such companies. Next, we sourced the hedge fund sentiment for each stock from Insider Monkey's proprietary database of 943 hedge funds. We narrowed down our selection to the 10 stocks that were the most widely held by institutional investors. Along with each stock, we have mentioned the hedge fund sentiment, its TTM PE ratio, analyst ratings, and top shareholders. We have ranked these stocks in descending order of their TTM PE ratios.
Undervalued Semiconductor Stocks To Buy Now
10. MACOM Technology Solutions Holdings Inc. (NASDAQ:MTSI)
PE Ratio (TTM) as of April 14: 13.83
Number of Hedge Fund Holders: 16
MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) is an American manufacturer of analog semiconductors for use in both wireless and wireline applications. According to the company's balance sheet, MACOM Technology Solutions Holdings Inc. (NASDAQ:MTSI) has a trailing twelve-month free cash flow of $150 million.
As of April 14, the stock has gained 21.87% over the past 6 months and is trading at a PE multiple of 13x. MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) is placed tenth among the best cheap semiconductor stocks to buy now, according to hedge funds.
Analyst see upside to MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI). This March, Stifel raised its price target on the stock to $82 from $75 and maintained a Buy rating on the shares.
16 hedge funds held stakes in MACOM Technology Solutions Holdings Inc. (NASDAQ:MTSI) at the close of the fourth quarter of 2022. The total value of these stakes amounted to $94 million. As of December 31, D E Shaw is the largest shareholder in the company and holds a position worth $40 million.
9. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
PE Ratio (TTM) as of April 14: 13.54
Number of Hedge Fund Holders: 86
At the close of the fourth quarter of 2022, 86 hedge funds were Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and disclosed collective stakes worth $10.2 billion in the company. Of those, Lone Pine Capital was the leading investor in the company and held a stake worth $774 million.
Wall Street is bullish on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). On March 29, KGI Securities took coverage of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) with an Outperform rating and a NT$603 price target.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the best cheap semiconductor stocks to buy now. As of April 14, the stock has a TTM PE ratio of 13.54 and has returned 34.38% to investors over the past 6 months. Moreover, the company has a TTM FCF of NT$520.9 billion.
Some of hedge funds' top semiconductor stock picks include NVIDIA Corporation (NASDAQ:NVDA), Micron Technology, Inc. (NASDAQ:MU), and Advanced Micro Devices, Inc. (NASDAQ:AMD)
Lam Research Corporation (NASDAQ:LRCX) is a premier supplier of wafer fabrication equipment and related semiconductor processing equipment to the semiconductor industry. The company has operations across the globe. According to the company's balance sheet, Lam Research Corporation (NASDAQ:LRCX) has a trailing twelve-month free cash flow of $2.95 billion.
On March 1, KGI Securities upgraded Lam Research Corporation (NASDAQ:LRCX) to Outperform from Neutral and maintained its $600 price target on the shares.
Lam Research Corporation (NASDAQ:LRCX) is on the rise and is trading at a compelling valuation. Shares of Lam Research Corporation (NASDAQ:LRCX) have gone up by 58.79% over the past 6 months, as of April 14, and the stock is trading at a PE multiple of 13x. Lam Research Corporation (NASDAQ:LRCX) is placed eighth on our list of the best cheap semiconductor stocks to buy now, according to hedge funds.
Lam Research Corporation (NASDAQ:LRCX) was spotted on 68 hedge funds' portfolios at the close of Q4 2022 that disclosed stakes worth $3 billion in the company. As of December 31, Alkeon Capital Management is the top stockholder in the company and has a position worth $253.5 million.
STMicroelectronics N.V. (NYSE:STM) is a leading Swiss manufacturer of semiconductor products. The stock has gained 43.65% year to date, as of April 14, and has a trailing twelve-month PE ratio of 12.12. Moreover, the company has a trailing twelve-month FCF of $1.58 billion. STMicroelectronics N.V. (NYSE:STM) is one of the best undervalued semiconductor stocks to buy now.
Analysts see material upside to STMicroelectronics N.V. (NYSE:STM). This March, Barclays raised its price target on STMicroelectronics N.V. (NYSE:STM) to EUR 64 from EUR 60 and reiterated an Overweight rating on the shares.
At the end of the fourth quarter of 2022, 18 hedge funds were eager on STMicroelectronics N.V. (NYSE:STM) and disclosed collective positions worth $248 million. Of those, Point72 Asset Management was the most prominent shareholder in the company and held a stake worth $87 million.
Diodes Incorporated (NASDAQ:DIOD) is a leading American manufacturer of semiconductor products. The company has exposure to a variety of end markets including consumer electronics, computing, communications, industrial, and automotive industries. According to the company's balance sheet, Diodes Incorporated (NASDAQ:DIOD) has a trailing twelve-month FCF of $180.7 million.
Diodes Incorporated (NASDAQ:DIOD) is ranked sixth on our list of the best undervalued semiconductor stocks to buy now, according to hedge funds. As of April 14, the stock is trading at a PE multiple of 11x and has gained 11.50% year to date.
On February 7, Truist analyst William Stein raised his price target on Diodes Incorporated (NASDAQ:DIOD) to $108 from $101 and maintained a Buy rating on the shares.
Diodes Incorporated (NASDAQ:DIOD) was a part of 20 investors' portfolios at the end of Q4 2022. These funds held collective positions worth $86 million in the company. As of December 31, Adage Capital Management is the dominant investor in the company and has disclosed a stake worth $27 million.
In addition to Diodes Incorporated (NASDAQ:DIOD), other semiconductor stocks that are on investors' radars include NVIDIA Corporation (NASDAQ:NVDA), Micron Technology, Inc. (NASDAQ:MU), and Advanced Micro Devices, Inc. (NASDAQ:AMD).
