7 Semiconductors With Strong Sources Of Profitability

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 |  Includes: CEVA, KLAC, LSI-OLD, OSIS, OVTI, SWKS, UTEK
by: Kapitall

There is always more to a company’s story than its bottom line. Although the bottom line, or net income, is the headline number that analysts watch and journalists report, companies can earn these profits in different ways – some more preferred than others. This is why it is always a good idea to study the sources of profits for a company.

One way to analyze sources of profitability is with DuPont analysis of return on equity (ROE) profitability.

ROE can be broken up into three components such that increases in ROE can be attributed to those components.

ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Analyzing the sources of returns for a company, we can focus on companies with the following characteristics: Increasing ROE along with,

• Decreasing leverage, i.e. decreasing Asset/Equity ratio
• Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.
To illustrate this analysis, we ran DuPont on the semiconductor industry of the tech sector.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬


We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these stocks have strong profitability? Use this list as a starting point for your own analysis.

List sorted by increase in ROE.

1. OmniVision Technologies Inc. (NASDAQ:OVTI): Designs, develops, and markets semiconductor image-sensor devices. Market cap of $699.23M. MRQ Net Profit Margin increased to 15.20% from 8.77% year-over-year, Sales/Assets increased to 0.25 from 0.23, while Assets/Equity decreased to 1.36 from 1.47. The stock is currently stuck in a downtrend, trading 21.73% below its SMA20, 25.39% below its SMA50, and 55.75% below its SMA200. It's been a rough couple of days for the stock, losing 10.73% over the last week.

2. Ultratech, Inc. (NASDAQ:UTEK): Develops, manufactures, and markets photolithography and laser thermal processing equipment. Market cap of $534.77M. MRQ Net Profit Margin increased to 19.04% from 12.92% year-over-year, Sales/Assets increased to 0.17 from 0.14, while Assets/Equity decreased to 1.19 from 1.24. It's been a rough couple of days for the stock, losing 8.65% over the last week.

3. LSI Corporation (NASDAQ:LSI-OLD): Designs, develops, and markets storage and networking semiconductors and storage systems worldwide. Market cap of $3.09B. MRQ Net Profit Margin increased to 5.36% from 5.17% year-over-year, Sales/Assets increased to 0.24 from 0.18, while Assets/Equity decreased to 1.78 from 1.80. The stock is currently stuck in a downtrend, trading 8.67% below its SMA20, 6.9% below its SMA50, and 16.91% below its SMA200. It's been a rough couple of days for the stock, losing 6.32% over the last week.

4. CEVA Inc. (NASDAQ:CEVA): Engages in designing and licensing silicon intellectual property (SIP) for the handsets, portable multimedia, and consumer electronics markets. Market cap of $679.55M. MRQ Net Profit Margin increased to 33.20% from 28.0% year-over-year, Sales/Assets increased to 0.07 from 0.06, while Assets/Equity decreased to 1.09 from 1.11. The stock is a short squeeze candidate, with a short float at 14.85% (equivalent to 14.83 days of average volume). The stock has gained 30.15% over the last year.

5. OSI Systems, Inc. (NASDAQ:OSIS): Designs, manufactures, and sells specialized electronic systems and components for applications in homeland security, healthcare, defense, and aerospace markets worldwide. Market cap of $858.31M. MRQ Net Profit Margin increased to 2.95% from 2.64% year-over-year, Sales/Assets increased to 0.27 from 0.25, while Assets/Equity decreased to 1.54 from 1.56. The stock has gained 21.74% over the last year.

6. Skyworks Solutions Inc. (NASDAQ:SWKS): Offers analog and mixed signal semiconductors worldwide. Market cap of $3.09B. MRQ Net Profit Margin increased to 15.96% from 14.94% year-over-year, Sales/Assets increased to 0.21 from 0.20, while Assets/Equity decreased to 1.17 from 1.19. The stock is currently stuck in a downtrend, trading 17.07% below its SMA20, 18.34% below its SMA50, and 34.42% below its SMA200. It's been a rough couple of days for the stock, losing 14.98% over the last week.

7. KLA-Tencor Corporation (NASDAQ:KLAC): Engages in the design, manufacture, and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Market cap of $7.38B. MRQ Net Profit Margin increased to 24.11% from 22.60% year-over-year, Sales/Assets increased to 0.1745 from 0.1705, while Assets/Equity decreased to 1.56 from 1.71. It's been a rough couple of days for the stock, losing 7.41% over the last week.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.