(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of NXPI.)
Apple Inc.'s (AAPL) latest iPhone models are hitting stores, and some of the tech giant's key suppliers are likely to be big winners. Technical analysis suggests that shares of STMicroelectronics N.V. (STM), Cypress Semiconductor Corp. (CY) and NXP Semiconductors N.V. (NXPI) may rise by 11% or more in the coming weeks.
The three stocks are well off their highs, with the shares down by as much as 28%. Semiconductor stocks in general have fallen on rising U.S.-China trade tensions and the potential impact of tariffs. (See also: 4 Oversold Chip Stocks Poised to Rise Short Term.)
NXP Can Rise 15%
NXP' stock gives us a general picture of how these suppliers will be affected. NXP may have the biggest gain of the three, rising 15% from its current price of around $93.50. That's because the stock is breaking out of a technical downtrend. The shares started falling in June from around $122. That was when it became clear that Qualcomm Inc. (QCOM) would not receive approval from Chinese regulators to buy the company. But now, NXP's stock is recovering and it may increase to $106, its next level of technical resistance. (See also: NXP Stock Seen Falling Amid Qualcomm Deal Concern.)
Momentum is turning bullish for the stock as well. The relative strength index (RSI) is now beginning to trend higher. The RSI started rising in early May as the stock was still making new lows, which is a bullish divergence.
In addition to a technical view, analysts also are bullish on NXP and see the shares rising on average by 17%.
A big driver is NXP's improving fundamentals. Earnings estimates have risen since the beginning of September. For 2018, earnings are now expected to grow by 4%, which is up from prior growth estimates of 2%. Profits are forecast to accelerate next year, rising by 18% in 2019 and almost 19% in 2020.
Shares May Be Too Cheap
Those kinds of earnings make NXP look inexpensive at a 2019 price to earnings ratio of 11. When adjusting the PE ratio for growth, NXP looks even cheaper with a PEG ratio of only 0.65.
Cypress and STMicro also may see sizable stock gains, though not as big as NXP. Technical analysis indicates that Cypress will rise about 12% and STMicro by 11%. One thing, though, is certain. All three are a good bet to benefit from Apple's next product wave.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.