5 Chip Stocks J.P. Morgan Likes
NEW YORK ( TheStreet) - Semiconductor stocks such as Intel(INTC) , Texas Instruments (TXN) , Xilinx(XLNX) , Analog Devices (ADI) and ON Semiconductor (ONNN) could see further upside, according to JPMorgan, which believes the PC market may be growing faster-than-expected.
Analyst Christopher Danely notes that inventories are being replenished and hard-disk-drive supply is ramping up. "Our industry checks indicate order rates from the PC end market continue to track ahead of expectations in 1Q12 due to inventory replenishment resulting from faster than expected ramp of hard disk drive supply," Danely wrote in a research note.
The analyst notes that component inventory for the PC market (primarily semiconductors) is getting replenished at a faster-than-expected rate, as worries over the hard disk drive shortage are abating.
Here are five semiconductor stocks that JPMorgan believes have more upside ahead:
Intel shares have performed well year-to-date, gaining 16.67%, and 38.28% year-over-year.
The chip giant has had exceptional gross margin performance, in the low 60% range, and J.P. Morgan raised its first-quarter earnings estimates for the firm, as Danely believes orders are tracking ahead of estimates. J.P. Morgan expects $13 billion in revenue and gross margins of 64% in the first quarter, compared to Intel's guidance of $12.3 billion and $13.3 billion in revenue, and gross margins of 61% to 65%.
"We are expecting above-seasonal QoQ growth in 2Q12 due to inventory replenishment but roughly normal seasonal growth during 2H12. Moreover, our C12 gross margin estimate of 63.8% is below the midpoint of Intel's guidance of 64.0% due to lower sales," Danely wrote in his research note.
Despite Intel's exceptional performance potential and short-term upside, J.P. Morgan downgraded the name in January, on worries about peaking gross margins and estimates. Since the downgrade on January 17, shares have gained 10.54%, compared to a 13.5% gain in the Nasdaq. Danely rates Intel shares "neutral" with a $25 price target.
Texas Instruments makes chips for a wide array of electronic devices, including the iPhone, iPad and other mobile electronics. Shares have gained 14.68% year-to-date.
J.P. Morgan believes the chipmaker offers more upside than Intel or even Advanced Micro Devices (AMD) , as it has more leverage, which could lead to upside from the consensus estimates. J.P. Morgan rates Texas Instruments shares "overweight" with a $39 price target.
Analysts polled by Thomson Reuters expect Texas Instruments to report $3.06 billion in revenue and 29 cents per share for the first-quarter. The company, however, recently cut first-quarter guidance , saying it still sees a reduction in demand for its wireless products. Texas Instruments' first-quarter outlook is now 15 cents to 19 cents per share on a revenue range of $2.99 billion to $3.11 billion. The Dallas-based firm had previously projected earnings of 16 cents to 24 cents per share on a revenue range of $3.02 billion to $3.28 billion.