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We’ve seen all the headlines:
- Global Chip Shortage.
- Auto Makers Halt Production Due to Semiconductor Shortage.
- Semiconductor Producers Ramp Up to Meet Overwhelming Demand.
In 2020, as the COVID-19 pandemic took hold globally, semiconductor producers were forced to halt production.
This created a significant backlog of unfulfilled chip orders.
Semiconductors are used in everything from smartphones and vehicles to medical devices and water heaters. Demand for these chips never waned … it only grew.
Semiconductor manufacturers are racing to meet the surge in demand.
I used Adam O’Dell’s six-factor Green Zone Ratings system and found a semiconductor company that caters to all the sectors hurting for chips.
We are “Strong Bullish” on this company’s stock, which means it is poised to outperform the broader market by at least three times over the next 12 months.
Semiconductors aren’t going away. In fact, the chip market trend will bring profits to producers as well as smart investors that get in now.
Demand for Semiconductors to Push Market Even Higher
Before the COVID-19 pandemic caused a work stoppage around the world, demand for semiconductors was on the rise.
From a market size of just $33 billion in 1987 to $440.4 billion in 2020, the semiconductor market exploded by 1,234% in just over three decades.
Even with the chip shortage (and likely because of it), the semiconductor market is expected to grow another 30% to $573.4 billion by 2022.
This trend can give investors big profits.
A Global Leader: Tower Semiconductor Ltd.
Tower Semiconductor Ltd. (Nasdaq: TSEM) is an independent semiconductor foundry located in Israel.
It produces the chips used by companies in the U.S., Asia and Europe.
Its chips go into various products, like:
- Personal computers.
- Cars and trucks.
- Medical devices.
- Communications equipment (think smartphones).
The company’s total revenue in 2020 was $1.26 billion.
Tower is expected to report revenue of $1.71 billion by 2023 — a 36% increase in annual top-line revenue.
The company recently announced a breakthrough in driver-assistance technology that allows for more accurate 3D imaging. It means cars equipped with the chips can respond faster to real-world situations.
Tower Stock Jumps 62% in 12 Months
In the last 12 months, TSEM rose from $18 per share to a 52-week high of $33.20. It pared some of those gains and found resistance at $29.60.
Recently, Tower stock broke through that resistance point and is priced at more than $30 per share — a 62% jump in 12 months.
Tower Semiconductor’s Stock Rating
Using Adam’s six-factor Green Zone Ratings system, Tower Semiconductor Ltd. scores an 82 overall. That means we are “Strong Bullish” on the stock and expect it to outperform the broader market by three times in the next 12 months.
Tower stock rates in the green in four of our six factors:
- Quality — Tower has positive returns on assets, equity and investment that are in line with the semiconductor equipment industry. The company earns an 86 on quality.
- Value — Tower’s price-to ratios (earnings, sales and cash flow) are below industry averages. The company earns a 76 on value.
- Growth — Quarterly sales for TSEM went from $347 million in the first quarter of 2021 to $362 million in the second quarter of 2021 — a 4.3% gain. The company’s trailing 12-month annual sales growth rate is 11%. It earns a 69 on this metric.
- Size — With a market cap of $3.14 billion, Tower is a great size for stocks we rate. It earns a 65 in this metric.
The company earns a 46 on momentum and a 53 on volatility as its 12-month rise in stock price met with some resistance earlier in 2021 and flat trading from March to August.
Bottom line: The semiconductor shortage is good news for companies in the sector.
Not only are these companies trying to fill backorders of chips from when production was halted in 2020, but they are also trying to fulfill new demand.
Advancements in 5G, autonomous driving and even vehicle displays means chip producers are going to stay busy for years to come.
The market is only getting bigger and investors to recognize this trend stand to make solid profits by getting in now.
That’s why Tower Semiconductor Ltd. is a stock to look at for your portfolio.
Pro tip: Tower Semiconductor is a good semiconductor stock to invest in. But it isn’t Adam’s highest-conviction recommendation within the sector. He just released that stock ticker to his Green Zone Fortunes subscribers! To learn how you can gain access to his recommendation and Green Zone Fortunes, click here.
Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.