{"id":78196,"date":"2023-10-29T13:42:40","date_gmt":"2023-10-29T17:42:40","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/buy-on-semiconductor-it-got-caught-in-the-chip-stock-selloff\/"},"modified":"2023-10-29T13:42:44","modified_gmt":"2023-10-29T17:42:44","slug":"buy-on-semiconductor-it-got-caught-in-the-chip-stock-selloff","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=78196","title":{"rendered":"Buy ON Semiconductor. It Got Caught in the Chip Stock Selloff."},"content":{"rendered":"
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Chip stocks have gotten crushed recently\u2014and shares of
\n ON Semiconductor
\n are no exception. It\u2019s cheap now, and could pop if it beats earnings expectations on Monday. <\/p>\n

ON stock (ticker: ON) is down about 25% to a recent $81.16 from its record high hit this summer amid tech-sector weakness and concerns about restrictions on exporting to China. The decline was compounded by a selloff in the chip sector on Wednesday caused by <\/p>\n

\n

\n Texas Instruments
\n (TXN), which missed sales forecasts when it reported earnings after Tuesday\u2019s close and said it saw weak demand from industrial customers. That caused all semi stocks to fall\u2014
\n iShares Semiconductor ETF
\n (SOXX) declined 4%\u2014and ON, which sells to some of those same customers, dropped 4.6%, closing at its lowest level in five months. <\/p>\n

With the stock down so much in a short time, though, much of those concerns are likely reflected in ON\u2019s shares. And with the company set to report earnings on Monday, it will have a chance to show that concerns about China, industrials, and other businesses are holding up just fine. <\/p>\n

\u201cLonger term, ON is on a much better road map in terms of the demand outlook,\u201d says Mizuho analyst Vijay Rakseh. \u201cNo reason why it shouldn\u2019t be a buy.\u201d <\/p>\n

The short-term is the problem right now and earnings could be the solution. Analysts project sales of $2.15 billion in the third quarter and earnings of about $1.34 a share. Both would be slightly lower than during the same period one year ago, almost entirely because of a decline in consumer-related chip sales. The company, though, said on its second-quarter earnings call that its forward guidance, which analysts use to configure their estimates, was conservative because of the economic picture. <\/p>\n

ON, though, has a track record of beating earnings estimates, topping forecasts in 17 of the last 20 quarters, according to FactSet, and has grown sales at about 11% annually in the past four years. That\u2019s why \u201cwe remain buyers ahead of ON\u2019s print on 10\/30 and reiterate our overweight rating and $130 price target,\u201d writes Wells Fargo analyst Gary Mobley. <\/p>\n

The China issue, meanwhile, isn\u2019t as damaging to ON as it is to others. Chips meant for electric vehicles and many consumer electronics, which comprise a significant portion of ON\u2019s sales, were kept out of the restrictions. \u201cON is not impacted by the ban,\u201d says Deutsche Bank analyst Ross Seymour. <\/p>\n

Nor is the company as exposed to industrials quite the way Texas Instruments is. ON gets almost half its revenue from the auto industry, which needs chips for software-based technologies. These products are higher priced, and the company says it expects annual sales to grow in the high teens in these segments. It\u2019s a big reason why analysts project total revenue growth of about 12% annually from the start of this year through 2026, when sales could hit $11.7 billion. These chips are more profitable, too, and analysts expect gross margins to rise to over 50% by 2026, which could power close to 16% annual bottom-line growth through that year. <\/p>\n

Combine that with stock buybacks and EPS would grow almost 18% a year to $8.48 by 2026. The company plans to use about half of its cash flow for repurchases, which is achievable, given that it will likely slow down its increases of long-term investments such as new equipment. <\/p>\n

The growth\u2014and any evidence of it on its upcoming earnings\u2014should drive the cheap stock higher. It trades at just under 15 times EPS estimates for the coming 12 months, below its peak for the year of just over 20 times. It trades at less than the
\n S&P 500\u2019s<\/span>
\n 17 times, and it\u2019s expected to grow EPS faster than the index. <\/p>\n

\u201cON is relatively cheap,\u201d says John McGinn, analyst at Laffer Tengler Investments, which is now considering buying shares. <\/p>\n

We recommend doing the same.<\/p>\n

Write to <\/strong>Jacob Sonenshine at jacob.sonenshine@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Chip stocks have gotten crushed recently\u2014and shares of ON Semiconductor are no exception. It\u2019s cheap now, and could pop if it beats earnings expectations on Monday. ON stock (ticker: ON) is down about 25% to a recent $81.16 from its record high hit this summer amid tech-sector weakness and concerns about restrictions on exporting to […]<\/p>\n","protected":false},"author":1,"featured_media":78197,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-78196","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nBuy ON Semiconductor. It Got Caught in the Chip Stock Selloff. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Chip stocks have gotten crushed recently\u2014and shares of ON Semiconductor are no exception. 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