While semiconductor sales reached an all-time high in 2022, a downturn in the second half of the year significantly limited growth. Despite the short-term decline, the industry’s long-term growth prospects remain bright. Therefore, investors looking to buy quality chip stocks could consider United Microelectronics Corporation (UMC) and Photronics, Inc. (PLAB) now.
The Biden-Harris Administration has announced the first CHIPS for America funding opportunity to reinvigorate the domestic semiconductor industry. The Bipartisan CHIPS and Science Act includes $39 billion in semiconductor incentives.
Secretary of Commerce, Gina M. Raimondo said, “The CHIPS and Science Act presents a historic opportunity to unleash the next generation of American innovation, protect our national security, and preserve our global economic competitiveness.”
The first financing opportunity is looking for proposals for projects that would build, develop, or modernize commercial facilities for the manufacturing of leading-edge, current-generation, and mature-node semiconductors.
Additionally, the global semiconductor market is expected to grow at 12.2% CAGR until 2029. Investors’ interest in chip stocks is evident from the SPDR S&P Semiconductor ETF (XSD) 24% returns over the past six months.
So, let’s delve deeper into these cheap stocks mentioned above:
United Microelectronics Corporation (UMC)
Headquartered in Hsinchu City, Taiwan, UMC is a global semiconductor foundry that operates through two segments: Wafer Fabrication and New Business. It offers high-quality IC fabrication services, focusing on logic and various specialty technologies to all electronics industry sectors.
On March 2, 2023, UMC announced the 28eHV+ platform, the latest advancement in its industry-leading 28nm embedded high voltage (eHV) technology. 28eHV+ is a suitable display driver for power next-generation displays used in smartphones, virtual and augmented reality devices, and IoT applications, enabling improved power efficiency and premium visual quality, and should boost the company’s revenue streams.
UMC’s forward EV/EBITDA of 4.86x is 63.3% lower than the industry average of 13.21x. Its forward non-GAAP P/E multiple of 10.80 is 47.3% lower than the industry average of 20.47.
UMC’s trailing-12-month ROCE of 28.31% is 495.5% higher than the industry average of 4.75%. Its trailing-12-month levered FCF margin of 17.94% is 163.4% higher than the 6.81`% industry average.
UMC’s operating revenue increased 14.8% year-over-year to $2.21 billion in the fourth quarter that ended December 31, 2022. The company’s net income increased 19.5% year-over-year to $623 million, and EPS came in at $0.05, up 19% year-over-year.
UMC’s revenue is expected to increase 24% year-over-year to $9.78 billion in 2024. Its EPS is expected to grow 38.4% year-over-year to $1.01 in 2024. UMC’s shares have gained 31.1% over the past six months to close the last trading session at $8.31.
UMC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UMC has an A grade for Quality and a B grade for Value and Momentum. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #4 out of 91 stocks. Click here for the additional POWR Ratings for Stability, Growth, and Sentiment for UMC.
Photronics, Inc. (PLAB)
PLAB and its subsidiaries manufacture and sell photomask products and services in the United States, Taiwan, China, Korea, Europe, and internationally.
PLAB’s forward EV/Sales of 1.18x is 58.5% lower than the industry average of 2.84x. Its forward Price/Sales multiple of 1.27 is 54.4% lower than the industry average of 2.79.
PLAB’s trailing-12-month EBIT margin of 27.15% is 361.7% higher than the 5.88% industry average, while its trailing-12-month EBITDA margin of 36.45% is 224.9% higher than the industry average of 11.22%.
PLAB’s total revenue increased marginally year-over-year to $211.09 million in the fiscal first quarter that ended January 29, 2023. Its total current assets came in at $700.82 million for the period ended January 29, 2023, compared to $644.65 million for the period ended October 31, 2022. Its long-term debt came in at $27.32 million, compared to $32.31 million for the same period.
Street expects its revenue to increase by 2.9% year-over-year to $892.50 million in 2024. Its EPS is expected to grow by 19.4% year-over-year to $1.97 in 2024. It surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 10.6% to close the last trading session at $17.64.
PLAB has an overall B rating, which equates to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Momentum and Quality. PLAB is ranked #13 in the same industry. To see the additional POWR Ratings for PLAB (Stability, Sentiment, and Growth), click here.
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UMC shares . Year-to-date, UMC has gained 27.26%, versus a 5.76% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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