Bank of America rates auto-related semiconductor stocks as one of its three favorite industries and counts On Semiconductor (ON) - Get ON Semiconductor Corporation Report and NXP Semiconductors (NXPI) - Get NXP Semiconductors NV Report among its five U.S. top picks.
The other three are Analog Devices (ADI) - Get Analog Devices, Inc. Report, Microchip Technology (MCHP) - Get Microchip Technology Incorporated (MCHP) Report and Texas Instruments (TXN) - Get Texas Instruments Incorporated Report.
Bank of America analysts see several bullish factors at work.
1) “Investors might be underappreciating the newfound pricing power of chip suppliers, including the ability to pass along rising foundry costs;
2) “An upward content mix, as auto production shifted to more premium/electric vehicle models that can have two to four times the content of a lower-end cars; and,
3) “Tailwinds from the replenishment of a severely depleted stock of cars at dealer lots that could help absorb rising chip capacity in 2022 and beyond,” they said.
The investment firm has target prices of $210 for Analog Devices, $185 for Microchip, $60 for On, $225 for Texas Instruments and $240 for NXP.
Analog Devices has “best-in-class profitability and differentiated/secular communications exposure,” Bank of America said.
Microchip Technology has an impressive “mix of growth, execution, profitability, and leverage.”
Meanwhile, Texas Instruments possesses “best-in-class profitability and cash-flow returns.”
At last check in a broadly down day in the market: Analog Devices was at $164.58, down 0.5%; Microchip at $146.55, down 1%; On Semi at $44.54, down 2.4%; Texas Instruments at $192.01, down 1%; and NXP at $189.98, down 1%.
Last month, in a report on Chinese semiconductor stocks, Goldman Sachs named Hua Hong HHUSF and SG Micro to its Conviction List.
And it pegged StarPower, CR Micro, Sanan, Silan, Wingtech, Maxscend, GigaDevice, AccoTest, NSIG, and Luxshare as key buy ideas.