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ON Semiconductor, Vishay: Semi Winners

Stocks in this article: ONNN FCS VSH DIOD

NEW YORK ( TheStreet) -- ON Semiconductor (ONNN - Get Report) stock is jumping by more than 3% Monday as it rebounds after a broad selloff last week.

ON Semiconductor last week reported fourth-quarter earnings that beat Wall Street consensus estimates, triggering a sell-off soon afterwards. However, its price rebounded today and Collins Stewart analyst John Vinh sees much upside potential for this stock. "This is kind of a recovery and gross margin expansion story," Vinh says. "They're going to continue to expand."

ON Semiconductor has a first-quarter gross margin outlook of 40% to 41%, including stock-based compensation or about 42% without it. Meanwhile, non-GAAP gross margin in the fourth quarter was 39.9% including stock-based compensation expense.

Vinh notes that ON Semiconductor has been closing down several fabrication plants and consolidating capacity, which allows the company to drive higher gross margins. ON Semiconductor already closed three fabrication plants in 2009 and may soon close another in Phoenix.

ON Semiconductor stock fell back to $7.70, up 2.4%, after rising more than 3% earlier today.

Vinh, for one, has a buy recommendation for ON Semiconductor with a $10 price target. He continues to be very positive on the semiconductor sector, noting that some of its channel inventories have been extremely lean, and adding that he isn't concerned about excess channel, which is being offset by healthy demand.

The company's peers have also advanced. Fairchild Semiconductor (FCS - Get Report) is up 3.5% at $9.20 and Vishay (VSH - Get Report) has increased 4.9% to $8.10. Diodes (DIOD - Get Report) has added 2.9% at $17.40.

-- Reported by Andrea Tse in New York

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