Semiconductor chip stocks are the talk of Wall Street due to a current chip shortage. All indications now are that with the mass COVID-19 vaccination drive beginning to beat back the pandemic, and with federal relief dollars contributing to a resumption in consumer spending, pent up demand for 5G smartphones among other electronic devices, such as video game consoles and computers that require chips for functionality, bodes well for the semiconductor sector because these chips are integral to the production of the aforementioned goods.
So, we think beaten down chip stocks are worth a look now because it is only a matter of time until the economy fully reopens and demand for semiconductors climbs to a new level.
The challenge, of course, lies in pinpointing the best semiconductor stocks to buy and hold for the months ahead or even the long-term. We think investors should take a close close look at industry leaders, such as Broadcom (AVGO) and Micron Technology (MU). We think that are both attractive plays currently.
But, let’s see which of the two semiconductor stocks is the better buy right now.
Broadcom (AVGO)
AVGO designs and develops semiconductor devices. The company’s focus is on mixed signal and complex digital semiconductors primarily. The company is positioned nicely following a series of acquisitions that have expanded its revenue streams and client base. AVGO’s management is now focused on bolstering its production capabilities in the infrastructure software segment.
Out of nearly 100 publicly traded companies in the Semiconductor & Wireless Chip industry, AVGO is ranked #8 overall. Click here to find out more about the companies that make up the Semiconductor & Wireless Chip segment.
Wall Street analysts have set an average target price of $512.85 for the stock. If AVGO hits this price, it will have climbed an impressive 13.32%. Analysts have a $580.00 high target price for AVGO and a $425.00 low price.
In total, 31 analysts have issued AVGO recommendations. None considers AVGO a Sell or Strong Sell. The majority (18) of the analysts consider the stock a Buy, while seven view the stock as a Strong Buy and half a dozen consider it a Hold.
AVGO has a B grade in our POWR Ratings, which equates to a Buy. It has B grades for the Quality, Stability and Growth components of the POWR Ratings. Click here to learn AVGO’s ratings for Sentiment, Momentum and Value in the POWR Ratings.
AVGO has a reasonable forward P/E ratio of 16.20. This figure is even more intriguing considering AVGO is priced a mere $55.00 below its 52-week high of $495.14. The stock's 52-week low is $254.75.
(Note that AVGO is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.)
Micron Technology (MU)
MU is a maker and marketer of semiconductor devices. It has a global client base. The company focuses CMOS image sensors, NAND Flash memory, and DRAM.
The POWR Ratings do not paint a rosy picture for MU shareholders. The stock has a C Rating grade, which represents a Hold. Though MU has a B grade for Value, it has C grades in the Growth and Stability components. Click here to learn MU's grades in the Momentum, Quality and Sentiment components.
Of the 98 publicly traded companies in the Semiconductor & Wireless Chip space, MU is ranked 52nd. Click here to find out more about this industry.
Wall Street analysts believe MU is underpriced, setting a lofty average target price of $113.30 for the stock, representing approximately 34% upside potential. The analysts' highest target price for MU is $165.00 and their lowest target price is a mere $39.00. A total of 37 analysts have issued MU recommendations with nine viewing MU as a Strong Buy, 24 considering it a Buy and four considering it a Hold. No analysts view MU as a Sell or Strong Sell.
Which is the Better Play?
We believe AVGO is the better of these two semiconductor stocks. AVGO has a superior POWR Rating grade of B, better individual POWR Rating component grades and a significantly higher industry ranking. If you want to add a 5G semiconductor stock to your portfolio, AVGO will likely provide a better return than MU.
Click here to checkout our Semiconductor Industry Report for 2021
AVGO shares were trading at $437.67 per share on Friday morning, up $7.07 (+1.64%). Year-to-date, AVGO has gained 0.74%, versus a 11.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.
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