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Analysts still expect advances on demand to continue

Semiconductor manufacturers continue to be in the crosshairs of analysts and investors. It is the fashion sector in 2021, due to the enormous shortage of chips that has occurred in the outbreak of the pandemic and the consequences that this is having in a multitude of different industries, such as automotive or electronic components

What a priori could seem like a specific problem due to the bottlenecks that have formed in the exit of the pandemic has become a serious situation that will last for several years.

The shortage of a vital component for thousands of products of all kinds has led to sharp increases in the prices of the main listed companies in the sector, and analysts still expect progress to continue, with 83% of the large manufacturers in the stock market receiving the purchase recommendation for its shares by the consensus of analysts that FactSet collects, and the remaining 17% being a ‘hold’. Thus, it seems that the 131% rally that the Bloomberg World Semiconductor Index has experienced is going to continue , if the analysts’ forecasts are met.

Although the semiconductor shortage has been so severe that it has become one of the central themes of 2021, this situation may not have reached its worst yet.

Pat Gelsinger, CEO of Intel, one of the largest firms in the sector, highlighted last week that the semiconductor shortage will reach its worst “during the second half of this year”, before starting to improve.

To return to normality, we will still have to wait several years, according to Gelsinger: “I do not expect the industry to recover a healthy supply and demand situation until 2023,” said the executive, adding that “for many different industries I think the situation it’s still going to get worse before it starts to get better. ”

Mikko Ripatti, head of sales for Spain and Portugal at DNB Asset Management, highlights how “global semiconductor sales amounted to $ 440 billion last year, a figure that is expected to grow at least 5% annually for the next five years”.

Micron is the best recommendation
In this context, many investors may be wondering how one can ride the bullish wave of chips. In addition to the VanEck Vectors Semiconductor ETF , which invests in the main firms in the sector and is available for sale in Spain, there are several Western companies on the market that have a strong buy recommendation.

Among the 10 with the best recommendation, within the companies that have at least 5 analysts following them and at least 5,000 million euros in capitalization, there are now 6 Chinese firms, something that did not happen in March, when there were only 3 firms from the Asian country. this criterion was followed.

The difficulty of buying these shares leads us to focus on Western companies, and in this group of the 10 most select firms by recommendation, Micron Technology, Microchip Technology and LAM Research stand out as US representatives, in addition to the French Soitec .

Micron is the one with the best recommendation of the four, something that may have to do with the attractiveness at which its shares are trading at this time in relation to the profit that is estimated for the next few years.

The company trades at a profit multiple (PER) of 7.56 times according to the expected earnings for 2022, a very attractive level if one takes into account that, on average, the 10 firms with the best recommendation have a PER of more than 40 times on average with the expected profit for next year.

Micron’s attractiveness , within a sector that has good prospects for analysts, has led it to enter the Eco30 index of elEconomista last month.

And it is that, the growth that analysts expect for the benefit of the North American firm is especially remarkable, of 376% between the years 2020 and 2022, the highest of the ten firms on the list, in addition to having the greatest potential, of more than 40% for its shares until reaching the target price set by the analysts.

The French Soitec has the second highest profit growth forecast among the four Western firms, with almost 140% between 2020 and 2022, but, in its case, the profit multiplier is close to 36 times, the highest of the four .

As for Microchip Technologies , it stands out for being the firm with the highest estimated profit margin, exceeding 35% for 2021 and 36% for 2022. Only Micron comes close in this regard, going from 21.8% wait for this year, up to 36% next.

LAM Research is, along with Micron, the other giant in the industry, with a capitalization of more than 78,000 million euros, very close to the 80,300 million that its competitor has. For LAM, expected profit growth also exceeds 100% between 2020 and 2022, and is trading at a PER ratio below 20 times based on expected profit for 2021.

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