Cramer: This One Chip Company Has 'Got It All'

NXPI Semiconductors specializes in products for high-growth industries such as connected cars and the Internet of Things, and Jim Cramer thinks it could become the world's biggest chip company.

Author:: Laura Berman
Publish date:: May 6, 2016 2:34 PM EDT

While many semiconductor companies rely on providing parts for products with declining sales, such cellphones and PCs, NXPI Semiconductors (NXPI) - Get Report specializes in chips for fast-growing sectors.

And that's why TheStreet's Jim Cramer believes it's the chip company that could have the most upside in the next eighteen months.

"NXPI is the fifth-largest semiconductor company now. It could be the largest semiconductor company," said Cramer, TheStreet's founder and manager of the Action Alerts PLUS portfolio, which just added NXPI to its holdings.

"It's Internet of things, it's cloud, it's near field communications like Apple Pay, it's not just linked to cellphones, it has so much of auto," Cramer added. "Every time you read about the connected car, every time you read about GM doing something in terms of a driverless car or a BMW that's loaded up with all sorts of options, NXPI is the company that is the single biggest beneficiary."

In contrast, semiconductor companies linked with other sectors will likely see falling share prices.

"What's going to happen is, people are backing away from semiconductor companies that are really linked with cellphones -- look at Qualcomm (QCOM) - Get Report ," Cramer said. "They certainly are going away from any semiconductor companies that are linked with PCs, and NXPI is the exact opposite. It's all in growth areas. They've just put together an amazing company."

Shares of NXPI have increased steadily in 2016, but are still about 14% below their price a year earlier. Cramer believes its share price will recover and could eventually exceed those levels.

"It could go back to where it was, but it could certainly exceed that if we just get a little bit of growth," he said. "Remember, the way these portfolio managers think is, they want a semiconductor stock, but they don't want anything with PCs and we know PCs have really slowed. They don't want anything with on-premises because of the cloud...What you need is some semiconductor company that can do well in that environment. A very quick cloud adoption, away from the PC. What you end up with is NXPI. It's just got it all."

In a recent note, analysts at Oppenheimer were similarly bullish on NXPI.

"NXPI is our top 'self-help' story, and we see upside to EPS estimates through synergies beyond the initial $500M target, de-leveraging, and share repurchases," wrote Oppenheimer's Rick Schafer and Joshua Buchalter in an April 28 note.

The analysts have an Outperform rating on the stock, noting that it trades at a multiple of about 12, below its peers' 17 and NXPI's historical multiple of 15, "presenting attractive risk/reward."