Technology is the main driving force that makes or breaks a chip stock. A chip manufacturing company can gain success only when it tries to innovate and upgrade as much as possible from the previous products made by it. Every year, there are interesting performances from many chip companies that have resulted in increased earnings and share prices. The evolving consumer technology sector could benefit three important chip stocks in the longer run, according to the analyst team from Deutsche Bank. They are explained below:
Strategic changes expected in the future
The company that is most respected in the chip sector is Broadcom Corp. (BRCM, Financial), and rightly so. This is the company that makes chips for the likes of Samsung and Apple. This explains the reputation that the company enjoys over its competitors. Deutsche Bank (DB, Financial) points out this as the must-buy chip stock for 2015, because this is going to be a year when the company will introduce many strategic changes that will spell good news for investors. When most the chip companies pay out nothing at all, Broadcom pays a reasonable annual dividend of $0.56 per share, or just around 1.33% dividend yield.
During December 2014, Broadcom announced its changed business model and reinstated that it would pool its efforts towards gaining more profits, which would mean slow growth on the earnings side. This should add value to investors because the company would begin to direct its revenues towards earning profits and these profits would then be paid out as dividends to investors. Currently the share price of Broadcom is around $42 per share. Analysts from Deutsche Bank expect this figure to go up to $50 per share this year, making it a must buy. Share price movement of the bank for the last few months are seen below:
Thriving on different products
A giant in the chip making sector, Intel (INTC, Financial) has a whole range of products to fall back on for its successful growth so far. Personal computers sales have witnessed an increasing trend in the last few months and there are lots of growth opportunities in the chip sector as well. In addition to this, demand from the smartphone other mobile applications have contributed immensely to Intel’s growth during 2014. This year looks perfect for Intel because it plans to buyback a considerable number of shares, widen the PC and smartphone market and make full use of the ever increasing growth in digital colour graphics department.
The shares of Intel are all set to go up for 2015 as well, because of these improved strategies. Its chip business will be one of the major contributors for its growth this year. Currently the share price is trading at around $36 and analysts expect this to go up to $40 per share during this year. The share price movement of Intel is show below:
Successful acquisition holds the key
The other stock that is highly recommended by Deutsche Bank is On Semiconductor (ONNN, Financial). One of the top reasons as to why this company is a must buy is because of its acquisition of Truesense Imaging, a company that deals in image sensor devices that are used in industries, traffic departments, photography and medical imaging fields. This acquisition helped On Semiconductors to cement its place strongly in the image sensory field and also helped the company to increase its customer base by about 200. The image sensory department is the fastest growing segments of On Semiconductor. Its technology portfolio got a whole new meaning because of this acquisition. By December, the top management approved $1 billion worth of repurchase of shares through the next four years, thereby reducing the number of shares floating in the market to a great extent.
Currently, the share price of On Semiconductors is trading at around $10 per share. Deutsche Bank expects this share price to go up to $12 per share. Other factors like increased earnings from System Solutions Group, purchase of Aptina Imaging for a deal worth $400 million and favourable GDP growth of the US economy will help On Semiconductor in the years to come. Hence, this is the right time to invest in this stock. Share price trend of the company for the last few months is seen in the below chart:
Conclusion
Chip stocks have gone through rough feathers during the past. There is lots of competition in this sector and the above mentioned stocks have survived because they were involved in path-breaking creativity or strategic acquisitions. These stocks are looking at an impressive year ahead as the results of their initiatives will be visible during this year. Investors who buy these stocks now are sure to be rewarded handsomely.
