3 Stocks To Buy As The Semiconductor Shortage Persists

Broadcom (AVGO)

AVGO operates through two segments: Infrastructure Software Solutions and Semiconductors. Its chips are found in all sorts of products, including iPhones, computers, and networking equipment. Thus, the company has benefited from the iPhone’s massive sales as well as increased spending with the 5G revolution.

Its infrastructure software is used to manage data centers, which have also seen substantial growth with cloud computing. Semiconductors account for 75% of revenue, but infrastructure software is growing faster and comes with bigger margins. Some analysts want to see the company split up into two parts to better monetize value. 

Given its exposure to two, different parts of tech which are growing at double-digit rates, its recent string of strong earnings reports is not surprising. In Q1, revenue increased by 14% with EPS growing by 25%. Given that its stock price has been range-bound, AVGO’s price to earnings ratio dropped from 55 to 43. For Q2, analysts project a 25% increase in EPS and 14% increase in revenue. Over the last year, operating margins have increased from 14% to 20%. 

AVGO’s POWR Ratings reflect this outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with their own weighting. A-rated stocks have posted an average annual performance of 30.7% which handily beats the S&P 500’s 7.1% average annual gain over the same period. 

Note that AVGO is one of the few handpicked stocks currently in the Reitmeister Total Return portfolio.

Texas Instruments (TXN)

TXN operates through two segments—Analog and Embedded Processing. Analog sells power products to manage power requirements. The Embedded Processing segment offers connected microcontrollers, digital signal processors (DSPs), and applications processors. 

TXN has been a major beneficiary of the current industry conditions in the semiconductor market. This is evident from its accelerating revenue growth. Over the last four quarters, it went from -12% to increase by 28% in Q1.

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