On Wednesday, the Semiconductor Industry Association released its April 2013 semiconductor market update, which found a 0.6% sequential increase in global revenues and a 1.8% year-over-year decrease from April 2012 sales. While April's growth was tepid, Forbes writes that the semiconductor industry will experience a recovery in the second half of the year as demand from equipment manufacturers increases. With that in mind, we set out to find semiconductor stocks that appear well positioned to deliver in the coming months.
We began with a universe of semiconductor stocks, which we then screened for those with a bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.
Next, we looked for a fundamental reason that could explain why hedge funds and other smart money investors are bullish towards these stocks. We analyzed the financials and screened for those with strong sales trends by comparing growth in revenue to growth in inventory over the last year. We screened for stocks with positive sales trends, with faster growth in revenue than inventory over the last year. Since inventory represents the portion of goods not yet sold, faster growth in revenue than inventory is considered an encouraging sign.
For an interactive version of this chart, click on the image below. Average analyst ratings sourced from Zacks Investment Research.
Do you think hedge funds are wise to invest in these stocks? Use this list as a starting point for your own analysis.
1. Vishay Intertechnology Inc. (VSH): Vishay Intertechnology, Inc. manufactures and supplies semiconductors and passive electronic components in the United States, Europe, and Asia.
- Market cap at $2.05B, most recent closing price at $14.25.
- Net institutional purchases in the current quarter at 8.3M shares, which represents about 6.32% of the company's float of 131.41M shares. The 2 top holders of the stock are Bank of New York Mellon Corporation and Dimensional Fund Advisors LP.
- Revenue grew by 2.92% during the most recent quarter ($554.25M vs. $538.55M y/y). Inventory grew by -4.84% during the same time period ($419.38M vs. $440.7M y/y). Inventory, as a percentage of current assets, decreased from 24.52% to 23.26% during the most recent quarter (comparing 3 months ending 2013-03-30 to 3 months ending 2012-03-31).
In the first quarter of 2013, Vishay Intertechnology reported $554.3 million in revenue, reflecting 2.93% year-over-year growth from $538.5 million. The company's net loss grew from $4.84 million in the first quarter of 2012 to a net loss of $5.37 million. Diluted EPS dropped from $0.19 to $0.18. Gross margins also fell, decreasing from 25.38% to 24.67%.
Vishay Intertechnology has returned 0.85% since May 7th, placing it in line with the rest of its industry. The company's performance surpasses peers Texas Instruments Inc. (TXN) and Maxim Integrated Products Inc. (MXIM), but falls behind industry leaders like Avago Technologies Limited (AVGO) and Intel Corporation (INTC), which returned 12.94% and 2.07%, respectively, over the last month.
When compared to industry peers, Vishay Intertechnology's PEG ratio of 1.54 and Price/Cash ratio of 2.08 suggest that the company is cheap. This is supported by a look at the company's Price to Free Cash Flow ratio, which stands at 15.2 and is considerably lower than competitors Avago Technologies Limited (P/FCF ratio at 27.59) and Maxim Integrated Products Inc. (P/FCF ratio at 30.62).
Vishay Intertechnology's EPS growth has been weak over the past year, coming in at -44.47%. Intel Corporation also experienced weak earnings growth with -10.95% EPS growth over the last year while Avago Technologies Limited's EPS grew by 2.81%.
Although hedge funds and smart money investors appear to be keen on Vishay Intertechnology, the company's higher-than-industry-average short float suggests that short sellers think there's more downside to the stock. Currently, Vishay Intertechnology's short float stands at 10.80%, which is equivalent to 11.98 days of average trading volume. This surpasses Avago Technologies Limited (short float at 0.56%, representing 0.52 days of trading volume) and Maxim Integrated Products Inc. (short float at 1.45%, representing 1.56 days of trading volume).
Vishay Intertechnology announced its acquistion of specialty resistor manufacturer MCB Industrie, S.A. back in April, and the company is set to complete the transaction during the second quarter. With this acquisition, Vishay Intertechnology will expand the resistors business carried out by its Vishay Sfernice division. MCB Industrie's resistors serve as motion sensors within avionics, military, and space settings as well as in the form of power resistors in industrial applications. The resitor manufacturer reported totaled €23 million in annual sales at the end of March 31, 2012.
2. Micron Technology Inc. (MU): Engages in the manufacture and marketing of semiconductor devices worldwide.
- Market cap at $12.72B, most recent closing price at $12.35.
- Net institutional purchases in the current quarter at 85.7M shares, which represents about 8.4% of the company's float of 1.02B shares. The 2 top holders of the stock are Orbis Holdings, Ltd and The Vanguard Group, Inc.
- Revenue grew by 3.43% during the most recent quarter ($2,078M vs. $2,009M y/y). Inventory grew by -17.3% during the same time period ($1,721M vs. $2,081M y/y). Inventory, as a percentage of current assets, decreased from 36.77% to 32.08% during the most recent quarter (comparing 13 weeks ending 2013-02-28 to 13 weeks ending 2012-03-01).
At the end of its fiscal second quarter, Micron Technology had $2.08 billion in revenue, reflecting a 3.48% increase from the company's revenue of $2.01 billion a year ago. The country's largest memory-chip maker reported a net loss of $286 million, or $0.28 per share, compared to a net loss of $282 million, or $0.29 per share, in the fiscal second quarter of 2012. Gross margins increased from 10.45% to 17.61%.
Micron Technology has recorded great gains over the last month, returning 23.87% since May 7th. The company's solid performances places it ahead of competitors SemiLEDs Corporation (LEDS), which returned 13.10%, and Integrated Silicon Solution Inc. (ISSI), which returned 9.87%.
Like Vishay Intertechnology, Micron Technology had a weak year in terms of earnings growth. The company's EPS grew by -728.11% over the last year. For context, Integrated Silicon Solution's EPS growth over the last year stands at -105.07% while Spansion Inc. EPS 144.76%).
In Micron Technology's earnings call, President Mark Adams expressed the company's intention to expand its presence in the mobile DRAM market. The timing couldn't be better as Seeking Alpha contributor Trefis notes that mobile DRAM revenue grew by 10% in 2012, surpassing standard DRAM's 3% growth rate. Micron Technology is in the midst of acquiring bankrupt Japanese memory chip manufacturer Elpida Memory, Inc. to strengthen the company's position in the mobile DRAM market. The Idaho Statesman reports that with the acquisition, Micron Technology will become the world's second largest memory provider.
*Accounting data sourced from Google Finance. Institutional data sourced from Fidelity. All other data sourced from Finviz.