UBS: These stocks are ‘best positioned’ to benefit as the chip shortage drags on

Published Mon, Jun 14 20217:36 PM EDTUpdated Tue, Jun 15 20211:40 AM EDT

Swiss investment bank UBS has named several semiconductor stocks that are set to benefit from the ongoing global chip shortage. As technology has advanced, semiconductor chips have spread from computers and cars to toothbrushes and tumble dryers — they now lurk beneath the hood of a surprising number of products. But there's an ongoing global shortage that's affecting a host of different sectors . In a note to clients this week, the bank's analysts highlighted which chip companies are particularly well-placed to benefit from the impact of the shortage on the automotive sector, which relies on chips for everything from the computer management of engines to driver assistance systems. Here are the stocks they recommend: Dutch firm NXP Semiconductors , German firm Infineon , U.S. firms Texas Instruments and ON Semiconductor were all flagged as favorable stocks in a heat map drawn up by the bank's analysts. "Based on our analysis, we believe the companies more likely to benefit from the current shortage are the ones that have: 1) less exposure to foundries with spare internal capacities and 2) more exposure to distributors to benefit from increasing prices," the analysts wrote. But chip stocks are expensive compared to some other sectors and investors need to think carefully about where they put their money, the analysts, led by Francois-Xavier Bouvignies, said. "Clearly the sector is not cheap but we expect earnings momentum to sustain through 2021," they wrote. UBS expects the chip shortage to affect the automotive industry into 2022 but it said there will be "some easing" from the second half of 2021, echoing Goldman Sachs' predictions . This is supported by evidence of company comments, as well as "significant investment" in the equipment used to make semiconductors (up more than 50% since January), and increased capacity allocation to autos in the second half of 2021, the UBS analysts wrote. "We estimate supply somewhat to catch up with demand despite some structural issues arising," they wrote. "Finally, company commentary suggests industrial demand is robust and channel inventories remain low, leaving us constructive on the industrial cycle." However, they also noted that the chip foundries have a "limited appetite" to invest in the ageing chips that cars use, compared to the "bleeding edge" chips that are used to power new computers and games consoles. In a report this month, Bain & Co said the chip shortage is "large and growing," adding that the shortage will last "longer than we hope for." "The issue is systemic; individual players and the industry as a whole need to define holistic chip strategies that make them more resilient against external shocks; governments have a role as well," the consultancy firm wrote.

Integrated circuits on a circuit board.

filonmar | E+ | Getty Images

Swiss investment bank UBS has named several semiconductor stocks that are set to benefit from the ongoing global chip shortage.

As technology has advanced, semiconductor chips have spread from computers and cars to toothbrushes and tumble dryers — they now lurk beneath the hood of a surprising number of products. But there's an ongoing global shortage that's affecting a host of different sectors.

In a note to clients this week, the bank's analysts highlighted which chip companies are particularly well-placed to benefit from the impact of the shortage on the automotive sector, which relies on chips for everything from the computer management of engines to driver assistance systems.

Here are the stocks they recommend: