Image Source: Unsplash

I was given a task to select 2 stocks as my favorites for the year ahead. Kulicke & Soffa (KLIC) was one of those picks. The demand for semiconductors is soaring. This is not a surprise as our lives become more and more reliant on electronic devices. That’s at the very heart of the “Internet of Things” movement.

This is a 'good news, bad news' scenario because the surge in demand has led to shortages for semiconductors in many places. The most notable of which is General Motors (GM) and Ford (F) talking about revenue being billions lower this year because they can’t get enough chips to go into cars.

So what is the natural solution to a chip shortage? Build more chips. And in particular build out the capacity for manufacturing more semiconductors, given about two decades of under-investment in the industry.

The biggest winners will be semiconductor equipment companies, which is why I see nothing but upside for Kulicke & Soffa in the year ahead. Their most recent earnings announcement makes that point abundantly clear as estimates are flying higher for this year and the next.

Analysts were already high on KLIC before this report. Now they are downright effervescent. Not just because of the clear growth story unfolding, but also the shocking value story as well.

Right now the average stock is trading for 24X next years earnings. Whereas KLIC is not even at 12X next years earnings. This is why Wall Street analysts are pounding the table with an array of fair value target prices between $78 and $100.

Our POWR Ratings concurs with this notion as KLIC is in the top 8% of all stocks for Value. The exceptional grades for KLIC don’t end there, as it is also top 6% for Momentum and top 3% for Growth. And let’s not forget that their industry as a whole is A rated, meaning we are looking at one of the best stocks in one of the best industries.

This stock would wow most investors on the tech growth story alone. However, when you layer on top that it is also one of the best value plays around, then you understand why it is such an easy choice to outperform in the year ahead.