3 earnings trade ideas for the sizzling chip sector: Stifel

Published Thu, Jul 14 20161:56 PM EDT

Chip stocks are one of the hottest sectors in the market. The VanEck Vectors Semiconductor ETF has more than doubled the S & P 500's year-to-date return. With this in mind, Stifel analyst Tore Svanberg gave his favorite semiconductor picks going into second-quarter earnings. "Near-term, our recommendations continue to be targeted at companies with specific and favorable catalysts: MaxLinear (MXL), Cirrus Logic (CRUS) and Inphi (IPHI). All three companies are positioned with strong product cycles this year," Svanberg wrote in a note to clients Wednesday. The picks have modest market caps in the $1 billion to $2.5 billion range and aren't as well known versus larger chipmakers. Here is why he recommends the companies. Cirrus Logic will report its second quarter financial results on July 27. "For the September quarter (F2Q17), we believe the company should start to see a significant pick-up as new products come to market and ramp at its largest customer, combined with newer product categories such as digital headsets," Svanberg said. "We recognize that this is just the beginning of a multi-year opportunity and that the roll-out of this new category will come in various stages, adding to our optimism." The analyst has a buy rating on Cirrus Logic with a $46 price target, representing 17 percent upside from Wednesday's close. Inphi will report its second quarter financial results on Aug. 8. "We believe fundamentals remain solid, especially in the Communications business where data points suggest that momentum remains strong across Long-haul, metro and DC. In fact, we believe the company remains on a growth trajectory that sees 50% growth in its core comms business," Svanberg wrote. He has a buy rating on Inphi with a $40 price target, representing 20 percent upside from Wednesday's close. MaxLinear also reports its second quarter financial results on Aug. 8. "The company is seeing its core business ramping initiatives such as DOCSIS front-ends, MoCA, D-CSS and 4K satellite gateways along with recent acquisitions," the analyst said. He has a buy rating on MaxLinear with a $24 price target, representing 17 percent upside from Wednesday's close.

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Chip stocks are one of the hottest sectors in the market.

The VanEck Vectors Semiconductor ETF has more than doubled the year-to-date return. With this in mind, Stifel analyst Tore Svanberg gave his favorite semiconductor picks going into second-quarter earnings.

"Near-term, our recommendations continue to be targeted at companies with specific and favorable catalysts: MaxLinear (MXL), Cirrus Logic (CRUS) and Inphi (IPHI). All three companies are positioned with strong product cycles this year," Svanberg wrote in a note to clients Wednesday.

The picks have modest market caps in the $1 billion to $2.5 billion range and aren't as well known versus larger chipmakers.

Here is why he recommends the companies.