As the 5G revolution takes hold of the world, one technology sector stands to profit greatly, and we’ll show you the four semiconductor stocks to buy now.
There’s one important component of the upcoming 5G revolution that tends to get overlooked.
You have a lot of infrastructure that needs to be in place — towers, cables, 5G antennas and more.
But what about the equipment that will receive and use the 5G signal?
You have smartphones, computers, laptops, tablets and more. Those pieces of tech all have to be fitted with the capability to accept and run a 5G signal.
And there’s one thing that will allow those things to work on a 5G signal: semiconductors.
Here we will show you what a semiconductor is and lay out the four semiconductor stocks to buy now.
What is A Semiconductor?
Technologically speaking, a semiconductor is used in electronic circuits. It is a material that conducts current.
Basically, anything that uses radio waves depends on a semiconductor to work.
Most semiconductors are made from pure elements like silicon. A small amount of impurities is added to the pure element to allow for larger conductivity of the material.
In its simplest terms, a semiconductor is the brain of modern electronics. They are used in various industries from health care to transportation and for automation, robotics and artificial intelligence.
These semiconductors will be at the heart of the 5G revolution as every device manufactured to run on a 5G network will need a new set of semiconductors to work properly and accept the 5G signal.
That’s why some semiconductor companies stand to gain a significant amount of customer base once 5G really takes hold.
4 Semiconductor Stocks to Buy Now
1. Taiwan Semiconductor
The largest player in the semiconductor world is Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM). It currently has about a 50% market share in the semiconductor space.
The biggest reason for that is that TSM serves as a microchip manufacturer for companies like Apple Inc. (Nasdaq: APPL), Qualcomm Inc. (Nasdaq: QCOM) and Nvidia Corp. (Nasdaq: NVDA).
Why, you ask? Well, manufacturing processors isn’t cheap and companies aren’t likely to want to start their own fabrication process. So they turn to companies like TSM to do it for them.
Besides that, TSM was the first to market the 7-nanometer semiconductor chip. The 7nm chip provides 35% speed improvement, uses 65% less power and has a 3.3X density improvement. It has become the chip of choice for computers, tablets and smartphones.
Because it was first to market with the popular 7nm chip, TSM is seen as a leader to produce semiconductors needed for the 5G revolution.
Taiwan Semiconductors, as a stock, has been a strong performer. Since May 2019, shares of the company have jumped 66%.
Technically speaking, TSM is solid in terms of value. It’s trailing price-to-earnings ratio is 23.2 while the industry average for semiconductor companies is 27.8. This would indicate the stock is not overvalued and has room for expansion.
Its price to sales is 7.8, which is a little higher than the 4.6 average for semiconductor stocks. But a lower price-to-sales ratio does make it a bit more attractive from an investment standpoint.
Finally, its price to book is 5.2. That is close to being in line with the semiconductor average of 4.6.
Another part of Taiwan Semiconductors that makes it a strong investment is the fact it pays out a dividend. Its annual dividend yield is 2.36%.
Because of its already-strong market share and its ability to be first to market in new technology, Taiwan Semiconductors is one of the four semiconductor stocks to buy now.
2. Skyworks Solutions
Another company that has a chip supply deal with Apple is Skyworks Solutions (Nasdaq: SWKS).
In fact, about half of Skyworks’ revenue comes from making chips for Apple products. So as Apple unveils more and more 5G-capable products, Skyworks will be set for big market gains.
It also has other deals with Chinese companies like OPPO, Vivo and Xiaomi. Because tensions between the U.S. and China have cooled, Skyworks can take advantage of what those companies are doing with 5G-related products.
Skyworks’ share price suffered a bit of a dip in June 2019, along with other tech companies, but has since rebounded about 90% since then.
In terms of technicals, Skyworks is in a similar position as Taiwan Semiconductors. It’s trailing price to earnings is 23.9 — below the semiconductor average.
It does have a lower price-to-sales ratio — 5.9 — making it an even more attractive potential investment than even TSM.
The company also has a lower price to book ratio — 4.6 — than most of its competitors, meaning it is more undervalued than most of its fellow semiconductor companies.
Like Taiwan Semiconductors, Skyworks Solutions pays its shareholders a dividend. That yield — 1.51% — is lower than TSM, but still attractive.
Skyworks Solutions appears to be a company that is undervalued across the board, meaning now is a good time to jump in. That’s what makes Skyworks Solutions one of the four semiconductor stocks to buy now.
3. Micron Technology
Boise, Idaho-based Micron Technology (Nasdaq: MU) makes your run-of-the-mill analog chips.
Those are extremely common and produced en masse, and the company has suffered because of the amount of those chips being produced.
Because of the stockpiles of those chips, Micron sales and earnings have suffered fairly flat growth.
Despite that, shares of Micron Technology have grown 103% since the end of 2018.
But the good news for Micron Technology is that 5G computers and smartphones require the the kind of flash memory the company specializes in to handle 5G capablities.
In fact, smartphones will likely require at least 6 gigabytes more of DRAM — dynamic random access memory — than the average 4G smartphone.
That presents a big market for Micron Technology for the future.
And, using technical analysis, Micron remains very undervalued.
Its price-to-earnings ratio is 17.4, which is much lower than the industry average. That ratio only started climbing significantly since December 2019 when it was at around 9.
Micron’s price to sales is at 2.9. That is considerably lower than both Skyworks and Taiwan Semiconductors. It’s also far lower than the semiconductor average.
Looking at its price to book, Micron Technology tells the same story. That ratio is 1.6, meaning its stock price relative to its book value — total assets minus liabilities — is even lower than the industry standard.
Technically, Micron Technology is a solid buy. Combine that with the increased need for DRAM it produces to make 5G devices makes Micron Technology one of the four semiconductor stocks to buy now.
4. Applied Materials
Another factor in the semiconductor space is companies that make the material semiconductor companies use to make the chips.
One of the leaders there is Santa Clara, California-based Applied Materials (Nasdaq: AMAT).
This company supplies the equipment and software companies use to make those semiconductor chips for smartphones, televisions and computers.
Despite sagging sales over the last four quarters, Wall Street continues to have a lot of faith in Applied Materials. So much so, shares of the company have jumped 124% since the end of 2018.
Applied Materials has a bit higher price-to-earnings ratio — 20.8 — than some of its semiconductor counterparts, but it remains well below the 27.8 industry average.
Like the other three companies on our list, Applied Materials’ price to sales is low — 3.7 — which is also lower than the average of 4.88.
The company’s price to book is 6.6, which is a bit higher than the 4.69 industry average, but not likely enough to be overly concerned.
Because of its position to continue supplying companies with the necessary software and equipment to make chips, Applied Materials is one of our four semiconductor stocks to buy now.
From industry leaders to industry suppliers, these four companies have the potential to rapidly take off as the 5G revolution comes to fruition.
And being on the verge of that happening now is the time to explore and invest in these companies.
Their value, industry position and value to the 5G revolution is what makes these companies four semiconductor stocks to buy now.