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3 Chip Stocks to Buy as the Industry Rebounds

Tickers in this article: ATML INTC NVDA
NEW YORK ( TheStreet) -- This is expected to be a recovery year for semiconductor stocks. The catalysts are stronger demand for telecom equipment and mobile devices such as Apple's(AAPL) iPhone 5 and iPad mini, which have had an excellent holiday quarter.

Despite the tech sector's robust gains in 2012, chip stocks rose only 4%. Here are a few companies to watch in 2013 that should improve on this performance.

Intel(INTC)

This stock lost 12% last year, but it felt much worse. The company grossly underestimated the transition to smartphones and tablets. Even today, it still appears slow in its response. Nonetheless, Intel has all of the makings of a successful turnaround story, one that earned $2.83 billion in its most recent quarter, beating analysts' estimates while meeting its revenue goals.

Intel logged sequential revenue growth of 5% but, remarkably, PC revenue rose a respectable 4%. That's a meaningful sign of life for a company that still owns 80% of the PC market. Despite its struggles in mobile, the stock is just too cheap not to like at $20 per share. And the company seems to agree.

Intel recently announced that it sold $6 billion in bonds to finance a stock-buyback program. The market may still be pessimistic about its prospects, but the company sees it differently. Opportunistic investors should jump in now. The last time Intel bought its own stock, the shares soared over 45% in six months. Plus, if the Apple rumors are true that Intel will be inside future iPads, this stock will become the easiest no-brainer among chips.

Atmel(ATML)

This stock dropped 20% last year, ending up at $6.55. However, unlike Intel, Atmel's recovery started much sooner. Since reaching a 52-week low of $4.37 in November, the shares have soared 50%. Essentially, the stock has bottomed after what was considered a disappointing third-quarter report. But it was solid relative to expectations.

For the fourth quarter, Atmel projected revenue of $328 million to $352 million. Not entirely optimistic, considering third-quarter revenue was $361 million. But that's where investors have to be willing to look beyond the numbers to fully appreciate the possibilities that lie ahead. Working in Atmel's favor is that its touch technology is far superior to any rival product.

As a result, the company was able to land design wins in Microsoft's(MSFT) Surface tablet and Amazon's(AMZN) Kindle Fire. Investors should expect Atmel to differentiate itself from the rest of the pack by growing in areas where the competition can't. Atmel's Xsense touch sensor is the tool to do that.

Likewise, the company's roll-to-roll metal mesh technology is able to offer features that are not yet common in today's industry-leading products, including those made by Apple. In 2013, I have Atmel listed as one of my top turnaround candidates. And at $6.55 per share, there is a good chance that the stock can gain another 50%, reaching $10 per share by the second half of 2013.