The stock market continued to rebound for the fourth straight day on Wednesday, allowing the benchmark indices to recover some of their losses from their dismal January performance. However, United States stock futures fell early Thursday on a disappointing quarterly report from the tech giant Meta Platforms Inc. (FB). Futures tied to the Nasdaq 100 declined some 2%, the d S&P 500 futures slid 1%, while the Dow Jones Industrial Average futures retreated 0.19%.
However, according to consulting firm Gartner, global semiconductor sales rose 25% last year to $583.50 billion, while the industry’s net profits grew 9% last year, outpacing its previous year’s growth. Furthermore, the global semiconductor market is expected to expand to exceed $1 trillion within 10 years, bolstered by solid demand.
Given this backdrop, we think chip stocks ASE Technology Holding Co., Ltd. (ASX), Diodes Incorporated (DIOD), Himax Technologies, Inc. (HIMX), and ChipMOS TECHNOLOGIES INC. (IMOS) might be solid bets now. These stocks look undervalued at their current price level and could soar in the near term, given their sound fundamentals.
Click here to checkout our Semiconductor Industry Report for 2022
ASE Technology Holding Co., Ltd. (ASX)
ASX in Kaohsiung, Taiwan, does business in semiconductor packaging, testing, and the production of interconnect materials internationally. The company offers packaging services that include advanced chip-scale packages, quad flat packages, and flip-chip ball grid arrays (BGA).
On December 1, ASX agreed with Beijing Wise Road Asset Management Co., Ltd. to sell shares and equity interests in GAPT Holding Limited and ASE (Kun Shan) Inc. to Wise Road Capital. The sale is expected to generate $1.46 billion while optimizing the company’s resource allocation in China.
In terms of its forward non-GAAP PEG, ASX is trading at 0.36x, which is 76.8% lower than the 1.55x industry average. The stock’s 0.75 forward Price/Sales multiple is currently trading 80.1% lower than the 3.76 industry average.
For its fiscal third quarter, ended Sept. 30, ASX’s total net revenues increased 22.3% year-over-year to NT$150.67 billion ($5.42 billion). Its operating income rose 101.6% from the prior-year quarter to NT$18.43 billion ($662.61 million). And its net earnings attributable to shareholders of the parent and earnings per equivalent ADS were NT$14.18 billion ($509.77 million) and $0.23, respectively, up 111.2% and 119% from the prior-year period.
The $0.18 consensus EPS estimate for the quarter ending March 2022 indicates a 28.6% year-over-year increase. The $5.01 billion consensus revenue estimate for the same period reflects a 17.7% improvement from the prior-year quarter. Furthermore, ASX has an impressive surprise earnings history, as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 2.5% in price over the past year and 8.3% over the past five days to close yesterday’s trading session at $7.27.
ASX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ASX has a Value grade of A and a Momentum and Sentiment grade of B. In the 100-stock Semiconductor & Wireless Chip industry, it is ranked #48. The industry is rated A. Click here to see the additional POWR Ratings for ASX (Growth, Stability, and Quality).
Diodes Incorporated (DIOD)
DIOD in Plano, Tex., is a designer, manufacturer, and supplier of application-specific standard products in the discrete, logic, and analog mixed-signal semiconductor markets globally. The company focuses primarily on low pin count semiconductor devices with one or more active and/or passive components.
On January 25, DIOD unveiled a high-side and low-side gate driver, a high-frequency device that is suitable for high-power applications, like cordless power tools, e-bikes, and autonomous robot appliances. The new product should add to the company’s revenue stream by catering to the demand for heightened efficiency and greater compactness.
On November 17, DIOD introduced its low dropout (LDO) voltage regulator, optimized for demanding noise-sensitive power-related automotive applications. The design of the LDO is expected to make it highly suited for applications in ADAS, automotive wireless communication systems, RF subsystems, and infotainment power sources.
DIOD’s 0.48 forward non-GAAP PEG multiple is 68.8% lower than the 1.55 industry average. In terms of its forward EV/Sales, the stock is currently trading at 2.33x, which is 39.9% lower than the 3.88x industry average.
DIOD’s net sales increased 52.3% year-over-year to $471.42 million in its fiscal third quarter, ended September 30. Its gross profit improved 63.1% from the same period in the prior year to $181.23 million. And its non-GAAP net income and non-GAAP EPS went up 105.2% and 137.1%, respectively, from the prior-year quarter to $67.28 million and $1.47.
The Street’s $1.47 EPS estimate for the fourth quarter ended Dec. 31, 2021reflects a 98.6% rise year-over-year. And the Street’s $477.05 million revenue estimate for the same quarter indicates a 36.2% increase from the prior-year period. In addition, DIOD has topped consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 22% in price to close yesterday’s trading session at $91.82. It has gained 11.4% in price over the past six months.
It is no surprise that DIOD has an overall A rating, which translates to Strong Buy in our POWR Rating system. DIOD has an A grade for Value and a B grade for Growth, Momentum, and Sentiment. It is ranked #6 in the Semiconductor & Wireless Chip industry. To see the additional POWR Ratings for Stability and Quality for DIOD, click here.
Himax Technologies, Inc. (HIMX)
HIMX is a fabless semiconductor company that provides display imaging processing technologies. The company operates through the two broad segments of Driver IC and Non-Driver Products. It is headquartered in Tainan City, Taiwan.
On January 14, HIMX introduced an 8K TV Timing Controller, a solution for the ultra-high resolution 8K gaming TV market. The new product, which is in tune with the progression of display technology for film and gaming, is expected to benefit the company.
On December 17, HIMX declared that its second-generation automotive in-cell TDDI (Touch and Display Driver Integration), which entered mass production in the third quarter of 2021, has been widely adopted by vehicle manufacturers across major automotive markets for new car models to be released to the public during 2022 - 2024. This reflects upon the company’s growth prospects of its automotive business.
In terms of HIMX’s forward non-GAAP P/E, it is currently trading at 4.33x, which is 81% lower than the 22.77x industry average. Also, the stock’s 3.38 forward EV/EBIT multiple is 81.8% lower than the 18.60 industry average.
For its fiscal third quarter, ended September 30, HIMX’s revenues increased 75.4% year-over-year to $420.94 million. Its profit for the period and earnings per ADS, attributable to HIMX climbed 1,362.2% and 1,287.8%, respectively, from the prior-year quarter to $117.85 million and $0.68.
Analysts expect HIMX’s EPS to increase 301% year-over-year to $0.79 for the fourth quarter, ended December 2021. The Street expects $450.33 million of revenue for the same period, reflecting a 63.3% improvement from the prior-year period. HIMX has beaten consensus EPS estimates in three of the trailing four quarters.
HIMX’s shares have gained 2.6% in price over the past five days to close yesterday’s trading session at $10.74.
This promising outlook is reflected in HIMX’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. HIMX has a Value grade of A and a Growth and Momentum grade of B. It is ranked #35 in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for Stability, Sentiment, and Quality for HIMX.
ChipMOS TECHNOLOGIES INC. (IMOS)
IMOS researches, develops, manufactures, and sells high-integration and high-precision integrated circuits and related assembly and testing services. The company’s semiconductors are used in personal computers, graphics applications, mobile products, and the automotive industry. It is headquartered in Hsinchu, Taiwan.
IMOS’ 3.75 forward EV/EBITDA multiple is trading 75.1% lower than the 15.06 industry average. In terms of its forward Price/Sales, the stock is trading at 1.21x, which is 67.9% lower than the 3.76x industry average.
IMOS’ revenue increased 25.9% year-over-year to NT$ 7.16 billion ($257.51 million) in its fiscal third quarter, ended September 30. Its gross profit and profit for the period rose 78.7% and 230.4%, respectively from the same period in the prior year to NT$1.96 billion ($70.40 million) and NT$1.40 billion ($50.30 million).
The $254.80 million consensus revenue estimate for the quarter ending March 2022 indicates a 10.2% year-over-year increase.
The stock has gained 35.6% in price over the past year and 7% over the past five days to close yesterday’s trading session at $33.78.
IMOS has an overall A rating, which translates to Strong Buy in our POWR Rating system. The stock has an A grade for Value and a B grade for Momentum, Stability, and Sentiment. It is ranked #2 in the Semiconductor & Wireless Chip industry.
In addition to the POWR Rating grades I have stated above, one can see IMOS ratings for Growth and Quality here.
Click here to checkout our Semiconductor Industry Report for 2022
What To Do Next?
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ASX shares were trading at $7.00 per share on Thursday afternoon, down $0.27 (-3.71%). Year-to-date, ASX has declined -10.37%, versus a -5.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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