Saturday, December 9, 2023
Stocks To Buy

The 3 Most Undervalued Semiconductor Stocks to Buy in September 2023

Last year, McKinsey released a report that talked about the importance of the semiconductor industry across businesses. According to the same report, the industry was worth $590 billion in 2021. The industry size is however expected to swell to $1 trillion by 2030. This is an indication of the impending growth and McKinsey rightly points out that it’s the semiconductor decade. It goes without saying that some of the best semiconductor stocks will create immense value until 2030.

While the industry tailwinds are positive, semiconductor stocks have been subdued. From a valuation perspective, this might be one of the best times to consider exposure to quality stocks. Going forward automotive, healthcare, and high-performance computing sectors will drive growth for the semiconductor industry.

It’s worth mentioning here that the semiconductor supply shortage is likely to ease in 2023. The outlook for the next year and beyond is optimistic. Valuations will therefore adjust on the upside. Let’s discuss the reasons to be bullish on the following semiconductor stocks.

Taiwan Semiconductor Manufacturing (TSM)

Taiwan Semiconductor Manufacturing (NYSE:TSM) is among the undervalued semiconductor stocks to buy. TSM stock trades at an attractive forward price-earnings ratio of 18.4 and offers a dividend yield of 1.94%.

A big reason to like Taiwan Semiconductor is innovation. To put things into perspective, Taiwan Semiconductor and ten of its customers “invest more in R&D than the top two semiconductor integrated device manufacturers combined.” To elaborate further on the technology edge, the company defines advanced technologies as 7-nanometer and more. For Q2 2023, the company derived 53% of revenue from advanced technologies.

It’s also worth noting that the company’s market is well-diversified. For Q2 2023, TSMC derived 77% of revenue from the high-performance computing and smartphone segment. However, some potentially big upcoming segments include IoT and automobiles. These emerging segments can be potential growth drivers in the next few years.

Qualcomm (QCOM)

It’s worth noting that Qualcomm (NASDAQ:QCOM) stock has remained sideways to lower in the last 12 months. I believe a breakout on the upside is likely after the current consolidation. My view is underscored by the point that QCOM stock trades at an attractive forward price-earnings ratio of 13.6. Additionally, the stock has a robust dividend yield of 2.84%.

For Q3 2023, Qualcomm reported revenue of $8.5 billion, which was higher than the midpoint of the guidance range. While the handsets segment was the key revenue driver, Qualcomm has significant traction in the automotive and IoT segments. The automotive segment reported revenue growth for the last quarter. Further, in Q3, the company secured more than ten design wins with automakers for “next-generation digital cockpit and telematics systems.”

It’s worth noting that for the first nine months of the financial year, Qualcomm has reported $6.7 billion in research and development expenses. With high investment in innovation, the decline in revenue is likely to be arrested.

Nordic Semiconductor (NDCVF)

Nordic Semiconductor (OTCMKTS:NDCVF) is another name among undervalued semiconductor stocks to buy and hold. In the last 12 months, NDCVF stock has declined by 21% and I see this as a good accumulation opportunity.

If I had to pinpoint the single biggest opportunity for Nordic, it would be as follows. For Q2 2023, Nordic reported cellular IoT revenue of just $3 million. I expect significant headroom for growth in this segment. The company claims to be the “first cellular IoT solutions provider encompassing hardware, software, tools, and cloud services.”

Further, during Q2 2023, Nordic launched new customer products for the industrial, healthcare, and wearable segment. The aggressive launch of new products is likely to be a growth catalyst.

This is particularly true for the healthcare and wearable device segment. To put things into perspective, the company revenue from the healthcare segment has increased to $34.5 million in Q2 2023. This implies a growth of just over 100% on a year-on-year basis.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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