Semiconductor stocks were hit hard by the recent market sell-off, but the underlying business of this industry is growing—and should continue that trend in 2018 and beyond. Throughout the chip-making space, companies have successfully adapted to the changing needs of the consumer, including an increased demand for small, high-powered chips that enable “Internet of Things” (IoT) devices.
For those that don’t know, the Internet of Things is the growing world of interconnected household and industrial devices. Everyday products and machines can now be embedded with sensor technology to process data or interact with other electronic devices.
For example, consumer-level IoT products include things like Amazon’s (AMZN – Free Report) Echo “smart speaker,” wearable motion and activity tracking products, and advanced in-car technology. On the commercial side of the IoT market, industrial manufacturers have begun implementing sensors into machines to track performance and efficiency.
(Also Read: How to Invest in the “Internet of Things”)
As demand for the microchips that power these IoT devices continues to grow, semiconductor manufacturers with a focus on IoT products will continue to benefit. And 2018 promises to be another marquee year for these suppliers, with the number of connected devices worldwide set to continue its rapid growth.
With that said, we’ve found three already-strong stocks that are looking to benefit even more from further IoT growth in 2018:
Vishay Intertechnology is a global manufacturer and supplier of discrete semiconductors. The company has a broad portfolio of unique passive and active solutions that are tailored to the “things” being controlled in the IoT. Vishay markets its portfolio to manufacturers of everything from biometric monitoring systems to fitbands and smart appliances.
VSH is currently a Zacks Rank #2 (Buy). The stock is an explosive growth option, with earnings and revenue expected to improve by 24.5% and 15.5%, respectively this year. But VSH is also reasonably priced, and the stock’s P/E of 12.2 and PEG of 2.0 show that investors are getting a great bargain on its current outlook. Shares have moved about 16% higher within the past month and could also be an interesting momentum play.
Cypress Semiconductor is a leader provider of high-performance digital and mixed-signal integrated circuits. Just last year, the company shelled out $550 million to acquire Broadcom’s Wireless Internet of Things business and now its “WICED” Platform is one of the largest IoT portfolios in the industry.
Cypress is sporting a Zacks Rank #1 (Strong Buy). Its P/E of 13.0 and PEG of 0.8 are currently trading at noticeable discounts to their respective industry averages. Meanwhile, the company is expected to post earnings growth of more than 40% in 2018. Income investors will also note that Cypress offers a 2.7% dividend right now.
Cree is a manufacturer of semiconductors that enhance the value of solid-state lighting, power and communications products. The company’s “SmartCast” platform enables Power over Ethernet technology and is geared toward IoT products and Smart Building platforms.
Cree is currently holding a Zacks Rank #2 (Buy). The stock is a hot momentum play, with shares adding more than 7% in the past four weeks to test new 52-week highs. Analysts have also become more bullish on the company’s earnings outlook, with full-year EPS estimates improving nearly 36% in the trailing month.
The Internet of Things is one of the most exciting emerging tech markets in the world. And while these specific products are interesting, the real moneymakers in these situations are the companies that are building the tech that powers these products.
The best way for investors to cash in on this growing trend is to identify companies that are not only investing in the Internet of Things, but are also displaying solid fundamentals and impressive Zacks metrics.
Today’s Stocks from Zacks’ Hottest Strategies
It’s hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 – 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we’re willing to share their latest stocks with you without cost or obligation.