5 Top Semiconductor Stocks As Post-Election Plays

The dust is settling down after the long-drawn U.S. presidential election, and at this juncture, BofA Securities sees a handful of semiconductor stocks as post-election plays that present attractive buying opportunities.

Bullish On Chipmakers With Cloud, Auto Exposure: Despite uncertainty around vaccines and the volatility associated with market rotation, owning fundamentally strong stocks exposed to structural "stay-at-home" trends, and reopening-driven acceleration provides a well-balanced framework, analyst Vivek Arya said in a note.

On that count, BofA favors secular growth cloud-computing exposed leaders NVIDIA Corporation NVDA, Advanced Micro Devices, Inc. AMD and Marvell Technology Group Ltd. MRVL.

The firm also prefers cyclically-exposed, automotive chipmakers such as Analog Devices, Inc. ADI and NXP Semiconductors NV NXPI.

BofA's top 5 cloud + car beneficiaries are poised to report average year-over-year sales growth of 15% and pro forma EPS growth of 31% for calendar year 2021, well above the 10-11% growth for the overall semiconductor sector.

Related Link: Goldman's Semiconductor Pair Trade: Buy AMD, Sell Intel

Focus On Growth Over Value: During a similar regime change from late 2016 into early 2017, value outperformed, but was displaced by growth stocks, Arya noted. Cloud and cars appear to be two end markets that will produce the most dependable growth.

Additionally, BofA's top picks benefit from announced M&A and the resumption of strong returns.

Cautious On Semicap Equipment and 5G Components: Despite preferring semicap equipment and 5G smartphone/RF component vendors, Arya thinks it's prudent to await better 5G sell-through trends that could drive near- to medium-term trends.

"While we are bullish on 5G adoption longer-term, we believe the US ecosystem has not yet made a compelling case for customer adoption," the analyst wrote in the note.

Any hiccups or 5G smartphone inventory build in China could pressure smartphone vendors and in turn memory-levered semicap vendors, he said.

Post-election Changes: A Democrat as U.S. president will mean lower tensions with China, a greater emphasis on domestic U.S. priorities such as a more measured stance on reopening the economy, and greater emphasis on green energy.

"While there continues to bipartisan support for more domestic US semiconductor manufacturing, any tangible benefits could be a few years out in our view," said Arya.

The firm sees a greater possibility of Intel Corporation INTC outsourcing its fab capacity to Taiwan Semiconductor Mfg. Co. Ltd. TSM in the next two years, rather than TSMC or others building new capacity before 2023/2024.

The Ratings/Price Targets: BofA has the following ratings and price targets for its top five semiconductor stocks:

• Nvidia: Buy/$650
• AMD: Buy/$110
• Marvell Technology: Buy/$50
• Analog Devices: Buy/$145
• NXP Semiconductor: Buy/$160