My Top Semiconductor Stocks For 2015

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Includes: AEIS, AMAT, AMBA, BRKS, CAMT, CSCD, CSIQ, DIOD, FSL, IMOS, INTC, IXYS, LLTC, LSCC, MKSI, MSCC, MTSN, MU, NVDA, NVEC, NVMI, NXPI, PDFS, PLAB, SPWR, SWKS, SYNA, TSEM, TXN, XCRA, XPER
by: Stan Stafford

Summary

In this series of articles, I will be reviewing individual industry sectors and selecting my favorite stock picks for 2015.

For Part 47, I will be reviewing the Semiconductor industry sector, taking a look at revenue/earnings growth and the overall financial stability of the companies.

Out of this group of reviewed stocks, my top pick for the remainder of 2015 is MKS Instruments.

Overview

In this series of articles, I will be taking a look at various industry sectors and selecting what I believe will be outperforming stocks for 2015. In Part 1, I reviewed 47 stocks within the Aerospace and Defense industry sector. For part 47, in determining my favorite stocks in this sector for 2015, I will review the following Semiconductor stocks:

  • Advanced Energy Industries (NASDAQ:AEIS)
  • Advanced Micro Devices (NASDAQ:AMD)
  • Alpha and Omega (NASDAQ:AOSL)
  • Altera (NASDAQ:ALTR)
  • Ambarella (NASDAQ:AMBA)
  • Amkor Technology (NASDAQ:AMKR)
  • Amtech Systems (NASDAQ:ASYS)
  • ANADIGICS (NASDAQ:ANAD)
  • Analog Devices (NASDAQ:ADI)
  • Applied Materials (NASDAQ:AMAT)
  • Applied Micro Circuits (NASDAQ:AMCC)
  • Atmel (NASDAQ:ATML)
  • Audience (NASDAQ:ADNC)
  • Avago Technologies (NASDAQ:AVGO)
  • Axcelis Technologies (NASDAQ:ACLS)
  • Broadcom (BRCM)
  • Brooks Automation (NASDAQ:BRKS)
  • Cabot Microelectronics (NASDAQ:CCMP)
  • Camtek (NASDAQ:CAMT)
  • Canadian Solar (NASDAQ:CSIQ)
  • Cascade Microtech (NASDAQ:CSCD)
  • Cavium (CAVM)
  • CEVA (NASDAQ:CEVA)
  • ChipMOS Technologies (NASDAQ:IMOS)
  • Cirrus Logic (NASDAQ:CRUS)
  • Cohu (NASDAQ:COHU)
  • Cree (NASDAQ:CREE)
  • Cypress Semiconductor (NASDAQ:CY)
  • Diodes (NASDAQ:DIOD)
  • DSP Group (NASDAQ:DSPG)
  • Entegris (NASDAQ:ENTG)
  • Entropic Communications (NASDAQ:ENTR)
  • Exar (NASDAQ:EXAR)
  • EZchip Semiconductor (EZCH)
  • Fairchild Semiconductor (FCS)
  • First Solar (NASDAQ:FSLR)
  • Freescale Semiconductor (NYSE:FSL)
  • GSI Technology (NASDAQ:GSIT)
  • Inphi (NYSE:IPHI)
  • Integrated Device Technology (NASDAQ:IDTI)
  • Integrated Silicon (NASDAQ:ISSI)
  • Intel (NASDAQ:INTC)
  • Intersil (NASDAQ:ISIL)
  • IXYS (NASDAQ:IXYS)
  • KLA-Tencor (NASDAQ:KLAC)
  • Kopin (NASDAQ:KOPN)
  • Kulicke & Soffa Industries (NASDAQ:KLIC)
  • Lattice Semiconductor (NASDAQ:LSCC)
  • Linear Technology (NASDAQ:LLTC)
  • M/A-COM Technology (NASDAQ:MTSI)
  • MagnaChip Semiconductor (NYSE:MX)
  • Marvell Technology (NASDAQ:MRVL)
  • Mattson (NASDAQ:MTSN)
  • Maxim Integrated Products (NASDAQ:MXIM)
  • MaxLinear (NYSE:MXL)
  • Mellanox Technologies (NASDAQ:MLNX)
  • Micrel (NASDAQ:MCRL)
  • Microchip Technology (NASDAQ:MCHP)
  • Micron Technology (NASDAQ:MU)
  • Microsemi (NASDAQ:MSCC)
  • MKS Instruments (NASDAQ:MKSI)
  • Monolithic Power Systems (NASDAQ:MPWR)
  • MoSys (NASDAQ:MOSY)
  • Nanometrics (NASDAQ:NANO)
  • NeoPhotonics (NYSE:NPTN)
  • Nova Measuring (NASDAQ:NVMI)
  • NVE (NASDAQ:NVEC)
  • Nvidia (NASDAQ:NVDA)
  • NXP Semiconductors (NASDAQ:NXPI)
  • OmniVision Technologies (NASDAQ:OVTI)
  • ON Semiconductor (NASDAQ:ON)
  • PDF Solutions (NASDAQ:PDFS)
  • Pericom Semiconductor (NASDAQ:PSEM)
  • Photronics (NASDAQ:PLAB)
  • Pixelworks (NASDAQ:PXLW)
  • PMC-Sierra (NASDAQ:PMCS)
  • Power Integrations (NASDAQ:POWI)
  • QuickLogic (NASDAQ:QUIK)
  • Rambus (NASDAQ:RMBS)
  • Rubicon Technology (NASDAQ:RBCN)
  • Rudolph Technologies (NASDAQ:RTEC)
  • Semtech (NASDAQ:SMTC)
  • Sigma Designs (NASDAQ:SIGM)
  • Silicon Laboratories (NASDAQ:SLAB)
  • Skyworks Solutions (NASDAQ:SWKS)
  • SunEdison (SUNE)
  • SunPower (NASDAQ:SPWR)
  • Synaptics (NASDAQ:SYNA)
  • Teradyne (NYSE:TER)
  • Tessera Technologies (TSRA)
  • Texas Instruments (NYSE:TXN)
  • Tower Semiconductor (NASDAQ:TSEM)
  • Ultra Clean Holdings (NASDAQ:UCTT)
  • Ultratech (NASDAQ:UTEK)
  • Veeco Instruments (NASDAQ:VECO)
  • Xcerra (NASDAQ:XCRA)
  • Xilinx (NASDAQ:XLNX)

Step 1

The first step I took to narrow down the list of possible options was to look at the earnings over the past five years of these stocks within the industry sector. I removed the following stocks from further review because of their negative earnings growth over the past five years:

  • Advanced Micro Devices
  • Alpha and Omega
  • Altera
  • Amkor Technology
  • Amtech Systems
  • ANADIGICS
  • Applied Micro Circuits
  • Atmel
  • Audience
  • Axcelis Technologies
  • Broadcom
  • Cavium
  • CEVA
  • Cirrus Logic
  • Cohu
  • Cree
  • Entegris
  • Enthropic Communications
  • Exar
  • EZchip Semiconductor
  • Fairchild Semiconductor
  • First Solar
  • GSI Technology
  • Inphi
  • Integrated Device Technology
  • Integrated Silicon
  • Kopin
  • Kulicke & Soffa Industries
  • M/A-COM Technology
  • MagnaChip Semiconductor
  • Marvell Technology
  • MaxLinear
  • Mellanox Technologies
  • Micrel
  • Monolithic Power Systems
  • MoSys
  • Nanometrics
  • NeoPhotonics
  • ON Semiconductor
  • Pericom Semiconductor
  • Pixelworks
  • PMC-Sierra
  • QuickLogic
  • Rambus
  • Rubicon Technology
  • Rudolph Technologies
  • Sigma Designs
  • Silicon Laboratories
  • Teradyne
  • Ultra Clean Holdings
  • Ultratech
  • Veeco Instruments

Step 2

I then took the list of remaining stocks and checked the revenue growth of each over the past two years. I am removing any stocks that had flat (less than 3%) growth or saw a decline in revenue over the past two years. These stocks include:

  • Cabot Microelectronics
  • Cypress Semiconductor
  • DSP
  • Intersil
  • KLA-Tencor
  • Maxim Integrated Products
  • OmniVision Technologies
  • Pericom Semiconductor
  • SunEdison
  • Semtech

Step 3

My next move was to examine the trailing PEG ratio of each of the remaining stocks. I removed any stock that had a PEG ratio over 2 to focus more specifically on fairly valued/undervalued stocks. These stocks included:

  • Analog Devices
  • Avago Technologies
  • Microchip Technology
  • Power Integrations
  • Xilinx

Step 4

The next set of data I reviewed was the Fundamental and Value Scores for each of the ten remaining stocks. These scores are calculated by YCharts and I have found them to be very useful when researching investment options. More details on each of the scores can be found here and here.

Fundamental Score Value Score
Advanced Energy Industries 8 7
Ambarella 7 2
Applied Materials 8 8
Brooks Automation 6 5
Camtek 6 NA
Canadian Solar 6 10
Cascade Microtech 7 6
ChipMOS Technologies 5 10
Diodes 8 9
Freescale Semiconductor 4 10
Intel 10 6
IXYS 9 10
Lattice Semiconductor 7 10
Linear Technology 9 7
Mattson 3 NA
Micron Technology 7 10
Microsemi 6 5
MKS Instruments 8 10
Nova Measuring 8 10
NVE 10 4
Nvidia 9 10
NXP Semiconductors 7 3
PDF Solutions 8 7
Photronics 5 9
Skyworks Solutions 8 8
SunPower 7 10
Synaptics 9 4
Tessera Technologies 7 10
Texas Instruments 9 4
Tower Semiconductor 5 NA
Xcerra 4 10

To determine the best stocks for 2015, I'm only taking into consideration stocks that have values of 7 or higher for both fundamental and value scores. Doing this left me with the following remaining stocks:

  • Advanced Energy Industries
  • Applied Materials
  • Diodes
  • IXYS
  • Lattice Semiconductor
  • Linear Technology
  • Micron Technology
  • MKS Instruments
  • Nova Measuring
  • Nvidia
  • PDF Solutions
  • Skyworks Solutions
  • SunPower
  • Tessera Technologies

Step 5

My next step was to look at the book value of each company and to remove any stock that has seen a decrease in its book value over the past five years. The stocks with a decline in book value during this time include:

  • SunPower
  • Tessera Technologies

Step 6

I then looked at the remaining stocks and only included stocks with earnings yields of 5% or higher in my final analysis. The stocks with yields below 5% include:

  • Advanced Energy Industries
  • Applied Materials
  • Diodes
  • IXYS
  • Linear Technology
  • PDF Solutions
  • Skyworks Solutions

Step 7

My next step was to look closer at each stock remaining that passed all previous criteria and determine whether or not there were any reasons to eliminate them as great stock candidates for 2015. In doing so, I reviewed the financials of each company, the most recent quarterly report transcripts, and searched for any news items that warranted concern.

Lattice Semiconductor

For its last quarter, the company posted an 8% decline in revenue and a drop in earnings per share from $0.07 to $0.03 compared to the same period last year. Some recent developments concerning the company include:

  • Recent acquisition of Silicon Image
  • Partnership with NYU Wireless
  • Development of industry first Miracast HDCP Protocol Analyzer
  • Introduction of industry first USB TYPE-C Controllers with MHL ALT Mode

The company continues to make significant changes and has displayed solid revenue growth of 70% over the past ten years; however, the company has been unable to translate that success to its bottom line as it continues to see declines in earnings.

Micron Technology

For its last quarter, the company posted a 1.5% increase in revenue and a decline in earnings per share from $0.97 to $0.81 compared to the same period last year. The company has a strong balance sheet and continues to reward shareholders with significant share repurchases.

The stock is attractively valued; however, I do not feel that there is much of a chance that this stock sees significant price appreciation throughout the remainder of this year. The company is making some strong moves, but moves that will pay off later. The company discussed this during its last earnings call:

I would like to reiterate that there are a number of significant factors that we believe will deliver growth, margin improvement and strong financial results for Micron towards the end of 2015 and heading into fiscal 2016. Among other things these include 20 nanometer DRAM, 16 nanometer TLC NAND, 3D NAND, mobile NAND, eMCPs, enterprise SSDs, and the Inotera contract change.

MKS Instruments

For its last quarter, the company reported a 4% increase in revenue and an increase in earnings per share from $0.54 to $0.66 compared to the same period last year. The company continues to see a strong environment for its semiconductor business as well as solid sales growth in its other markets as well.

MKS has maintained solid overall financial health and continues to increase its dividend at a slow rate, keeping its payout ratio manageable.

Nova Measuring

For its last quarter, the company posted a 21% decline in revenue and a drop in earnings per share from $0.25 to $0.15 compared to the same period last year.

Nova has seen impressive revenue growth on a long term basis, but its earnings have been fairly stagnant over the past five years.

NVMI Revenue (<a href=

NVMI Revenue (TTM) data by YCharts

I believe that the recent acquisition of ReVera will help the company's bottom line grow, but I don't think it's going to happen overnight, even with the company's strong forward guidance.

Nvidia

For its latest quarter, the company posted a 4% increase in revenue and a 14% increase in earnings per share compared to the same period last year. While increasing its dividend 15%, the company issued soft guidance for Q2.

I believe that Nvidia remains a decent long term investment option, especially after the significant price drop today following a downgrade from Nomura; however, I don't feel that the stock will make significant moves upward this year. I believe there is too much negative reaction to this stock currently that will keep it flat for the remainder of 2015.

Conclusion

Out of this group of stocks, my favorite pick for the remainder of the year is MKS Instruments. The company has had solid recent quarterly results and appears to be positioned well to see continued growth in both revenue and earnings. Looking at the charts below, you can see that since the beginning of 2013, MKS has seen the highest earnings growth and 2nd highest revenue growth out of the five remaining stocks.

MKSI EPS Basic Chart

MKSI EPS Basic (TTM) data by YCharts

MKSI Revenue Chart

MKSI Revenue (TTM) data by YCharts

MKS also remains attractively priced compared to the other stocks, with only Micron having both lower trailing and forward PE ratios.

While I believe that Micron and Nvidia remain decent long term investment options, I feel that recent downgrades along with not so great quarterly results will continue to put downward pressure on both of these stocks in the short term.

With variable, yet significant revenue and earnings growth over the past several years, along with the company's recent acquisition of Precisive LLC, I feel that MKS has the potential to outperform the market throughout the remainder of the year, just as it has done so far YTD and throughout the last year.

MKSI Chart

MKSI data by YCharts

For part forty eight of this series, I will be reviewing the Software industry sector. As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.