Home Stock exchange 2 innovative semiconductor actions ready to crush the market in 2022

2 innovative semiconductor actions ready to crush the market in 2022

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The reference S&P 500 the market index has increased by around 19% in 2021 (so far). But we’re a few months away from 2022, and there are challenges on the horizon that could cause uncertainty in the New Year.

Higher interest rates and fewer government stimulus are in the forecast of many stock market pundits, and the explosive economic growth sparked by a reopening company trying to weather an (ever-present) pandemic will also likely have followed its course in 2022.

Image source: Getty Images.

While this combination of factors may hold back market performance, it does not mean that all returns will be negative. However, investors may need to be more selective about the stocks they hold to generate comparable performance.

Two semiconductor stocks are currently benefiting from industry-wide supply shortages, and their products and services are likely to still be in high demand next year (and beyond). It could mean overwhelming returns for investors. Let’s find out a little more about these two actions which should be doing well in 2022.

1. The case of Cohu

If you’ve been trying to buy a new game console, advanced computer parts, or even a new car this year, you’ve probably struggled to get what you want. The culprit is a global shortage of semiconductors – the chips that power all of our electronics. This shortage is expected to continue until the start of the new year.

The auto sector has arguably been hit the hardest, as vehicles have become smarter, heavier and more electrified, making them more hungry for advanced processing power. Many automakers have been forced to cut production this year because they cannot get enough needed chips.

Cohu (NASDAQ: COHU) is a semiconductor services company that provides test and handling equipment to some of the world’s largest producers, helping them expand their capabilities to alleviate these pressures.

In fact, in the second quarter of this year, Cohu said its Neon inspection systems are key to increasing customer acquisition. The Neon range handles and inspects semiconductors as small as 0.2 millimeter by 0.4 millimeter at high speed without compromising fault detection – exactly the type of chips found in automotive applications.

This year, it has stepped up operations in its automotive segment and is expected to make its first annual profit since 2017 from skyrocketing revenue growth.

Metric

2019

2020

2021 (Estimate)

Returned

$ 583 million

$ 636 million

$ 902 million

Earnings (loss) per share

($ 1.69)

($ 0.33)

$ 3.05

Data sources: Cohu, Yahoo! Finance.

Cohu only increased its revenue by 9% between 2019 and 2020, but it is expected to more than quadruple that growth rate this year to 41%.

However, Cohu’s shares trade at a significant discount to a basket of its peers represented by the IShares Semiconductor ETF. The exchange-traded fund trades at a price-earnings multiple of 31 times, compared to 10 times for Cohu (based on estimated earnings for 2021).

As the semiconductor shortage is expected to persist into the New Year, so too is Cohu’s opportunity. Maybe that’s why a Wall Street company thinks the stock could go up over 109%.

A computer chip manufacturing worker welds a semiconductor.

Image source: Getty Images.

2. The case of Axcelis Technologies

Like Cohu, Axcelis Technologies (NASDAQ: ACLS) serves some of the largest semiconductor producers in the world, so it is also being set up for a very big year in 2022. But its role is much more technical, as it designs and builds ion implantation equipment that is used in the actual manufacturing process.

The company has also turned to the automotive segment, which falls under its “Power Device” range. In fact, in September, Axcelis shipped an entire family of its Purion Power Series implanters to various semiconductor manufacturers in Asia and Europe. The company said this was a sign of the growing electrification of the auto industry – and as this trend is only strengthening, Axcelis is extremely well positioned for future growth.

As a sign of a larger force, the company generated $ 100 million in systems revenue for the first time since 2004 in the second quarter of this year, and it’s seeing performance spill over into bottom line.

Metric

2019

2020

2021 (Estimate)

Returned

$ 342 million

$ 474 million

$ 625 million

Earnings per share

$ 0.50

$ 1.46

$ 2.46

Data sources: Axelis Technologies, Yahoo! Finance.

Axcelis is expected to increase its earnings per share by almost 400% since 2019 thanks to an expanding gross margin. Since the company’s products are in high demand, it produces more of them, which helps expand the scale, as fixed costs become a smaller part of the overall costs. In addition, customers are prepared to pay higher prices; these two factors lead to higher profits.

Right now, Wall Street has a consensus buy rating on shares of Axcelis and there isn’t a single major analyst recommending a sell. This is not surprising, given that there are many factors working in favor of this business, and this could be one of those choices that will help your wallet crush the market in 2022.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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