What is consistently ranked an
sector by both buy-side and sell-side over the last two years? --
The Info Tech Sector.
In light of this dominant and persistent top-down investing
recommendation, look further for top Zacks Ranked industry segments
inside IT. This can help drive your chosen stock's
outperformance. Furthermore, align closely with the most
favorable IT growth segments and the most resilient value
At the very base of the IT industry is the semiconductor
industry. Semi industries have recently shown us a flurry of
Zacks Industry Rank earnings driven upgrades.
On April 1, Semiconductor Industry Association (SIA) president and
CEO Brian Toohey wrote this on the front of SIA's industry website,
"Despite persistent economic uncertainty, the global semiconductor
industry is off to a promising start in 2013."
Growth has been underpinned by strength in memory sales
and is ahead of last year's pace.
Semiconductor year-to-date sales through February 2013 were +2%
percent higher than at the same point last year. Regionally,
year-over-year sales increased in Asia Pacific (+6.7%) and the
Americas (+1.6%), but decreased in Europe (-1.5%) and Japan
a solid value proposition in reducing energy demand
in new chips can be a source of ongoing competitive
advantage. This is behind earnings strength in top
Zacks Ranked stocks CREE and AEIS, discussed below. Both
target the manufacture of a lower energy using and therefore
Top Ranked Zacks Semiconductor Industries to
To think correctly about the semiconductor manufacturing industry
as an investor, a vertical integration structure is helpful.
Vertical integration serves as the main semi differentiator.
Four types of semiconductor industry silos exist in that context:
Integrated device manufacturers (IDMs).
These companies design, manufacture and sell their chips.
Think of chipmakers like
(Zacks Rank #3), Samsung,
(Zacks Rank #1) and
(Zacks Rank #3).
These companies design and sell chips, but outsource
manufacturing to foundry companies. Think of businesses
(Zacks Rank #2),
(Zacks Rank #3),
(Zacks Rank #2) and
(Zacks Rank #3). Or consider a Chinese mainland fabless
(Zacks Rank #1).
Foundry companies manufacture chips designed and sold by
their customers, especially the above fabless companies.
Think about models like the
Taiwan Semiconductor Manufacturing Corp
(TSM, Zacks Rank #3, but a Zacks Rank #1 a week ago), the world's
first semiconductor foundry and still the leader. Or its
United Microelectronics Corp.
(UMC, Zacks Rank #4) Taiwan's first semiconductor company formed
in 1980 as a spin-off of government-sponsored
Industrial Technology Research Institute
- At the bottom of the vertically integrated supply chain,
consider a specialty semi supplier-to-foundry company like
(Zacks Rank #1).
A leader in the four company Semiconductor Memory Industry is
) at a Zacks Rank #1.
The industry rank is currently 15 out of 265, up a massive +193 in
the ranks in just one week, mostly due to its small industry size
of four companies. When a key rank improves, it
matters. The industry has seen 15 positive annual earnings
estimate revisions and just 8 negative revisions recently.
SNDK is a flash memory (SIA's strongest growing segment) company in
this industry. It easily qualifies as an Integrated Device
Manufacture (IDM) type of company. The company designs,
manufactures, and markets flash memory storage products that are
used in a wide variety of electronic systems. One notable
competitor is Micron.
SNDK is a current Zacks Rank #1 (Strong Buy) with an Outperform
Sandisk reports its Q1-13 earnings on April 18. It reported
Q4-12 adjusted earnings of $0.99 per share in January, crushing the
Zacks consensus estimate of $0.68. Results were +135.7% above prior
quarter levels. The beat was mainly attributed to solid
recovery in the mobile embedded and retail businesses, strong
geographic contributions, and favorable supply/demand
metrics. Expected annual earnings growth is +13% a year, well
above the S&P 500 median.
Total revenues for the fourth quarter were $1.54 billion up +21.1%
from the previous quarter. The Q4 result came in slightly above the
Zacks consensus estimate of $1.52 billion and within the company s
SanDisk is fairly valued at its current P/E multiple of 16x 2013's
EPS estimate of $3.41, a premium to the industry average. Its
Price to Earning Growth (PEG) ratio remains a low 1.22.
The Semiconductor - Discretes Industry offers us
) at a Zacks Rank #2.
This Zacks industry has three companies in it. It is
currently a #35 rank, down -3 in the last week. The industry
has recently seen six upgrades to earnings estimates and zero
CREE is an example of a fabless manufacturer. The stock is a
large cap blend stock with a Zacks neutral rating. This stock
sports a nosebleed 56 forward PE ratio. High earnings growth
expectations must be met, quarter after quarter, without a miss.
Cree, Inc. is a manufacturer of semiconductors that enhance the
value of solid-state lighting, power, and communications products
by significantly increasing their energy performance and
Key to Cree's market advantage is its world-class materials
expertise in silicon carbide and gallium nitride for chips and
packaged devices that can handle more power in a smaller space
while producing less heat than other available technologies,
materials and products.
Cree drives its increased performance technology into multiple
applications, including exciting alternatives in brighter and
more-tunable light for general illumination; backlighting for
more-vivid displays; optimized power management for high-current
switch-mode power supplies and variable-speed motors; and
more-effective wireless infrastructure for data and voice
Cree customers range from innovative lighting-fixtures makers to
defense-related federal agencies.
The Semiconductor Analog & Mixed Industry is at a Zacks
Industry Rank of #71 out of 265.
There is a full set of 17 companies to look into here.
Recently, the industry has seen four earnings estimate upgrades and
It offers us
RDA Microelectronics, Inc.
) at a Zacks Rank #1. RDA also gets a Zacks Outperform
RDA operates as a fabless semiconductor company that designs,
develops and markets radio frequency and mixed-signal
semiconductors for a broad range of cellular, broadcast and
The company's product portfolio includes power amplifiers,
transceivers and front-end modules, FM radio receivers, set-top box
tuners, analog mobile television receivers, walkie-talkie
transceivers, LNB satellite down converters and Bluetooth
Its analog application is sold in China, Southeast Asia, India, the
Middle East, Africa, Russia, and Latin America. RDA
Microelectronics Inc is headquartered in Shanghai, People's
Republic of China.
Also, consider companies that fall in the Wireless Equipment
This industry currently has a Zacks Industry rank of #107 out of
265. There are 23 companies here.
A safe investment is
QCOM is a Zacks Rank #2, with a Zacks Outperform rating. Its Price
and Consensus chart looks very favorable for 2013 and 2014 earnings
QCOM develops and delivers chips destined for wireless
communications products (cellphones) and services based on the
company's CDMA digital technology. The forward PE ratio is a
lower 16, with a very nice PEG ratio of 1.09.
Expected annual earning growth is strong at +15%.
The third vertical to consider is the Semi Fab Foundry Industry
This group carries a Zacks Industry rank of #113 out of 265, with
just two companies in it. One is the dominant
Taiwan Semiconductor Manufacturer Co
). This is a large-cap stock that sported a Zacks Rank #1 a
week ago, and is now a #3. It has a neutral rating.
TSM is the world's largest dedicated integrated circuit (IC)
foundry. As a foundry, the Company manufactures ICs for its
customers based on their proprietary IC designs using its advanced
production processes. TSM's goal is to establish itself as one of
the world's leading semiconductor companies by building upon the
strengths that have made it the leading IC foundry in the world.
The forward PE is 16.9 and the stock pays a nice 2.4% dividend.
At the bottom of the value chain is the Semiconductor
Equipment/Wafer Fabrication industry.
This industry has six companies. It currently shares the #15
rank with the Semiconductor Memory Industry, down -1 from last
week. The industry has seen two positive earnings estimate
revisions and no negative revisions recently.
The industry offers us
) at a current Zacks Rank #1. This small cap blend stock gets a
Zacks Outperform rating, too.
In effect, Advanced Energy supplies semiconductor foundry companies
and others. It creates solutions that maximize process
impact, improve productivity, and lower the cost of ownership for
The company manufactures power conversion and control systems used
in plasma-based thin film production equipment. Company's systems
are integrated into semiconductor, data storage, flat panel
display, and other industrial manufacturing equipment that utilize
gaseous plasmas to deposit or etch thin film layers on materials,
or substrates such as silicon and glass.
Advanced Energy operates in regional centers in North America, Asia
and Europe. It offers global sales and support through direct
offices, representatives, and distributors,
Note: AEIS has one sell rating, and one strong sell rating
among its four ratings, due to overvaluation concerns. The stock
sports an 18 forward price-to-earnings (PE) ratio.
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