Bank of America names its top 6 chip stocks used by automakers

Published Tue, Oct 5 202111:06 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Bank of America analysts say semiconductors used in the automotive industry are one of their top sectors for 2022, naming six "top picks" set for growth. The supply of semiconductor chips — used in everything from household appliances, smartphones and vehicles — has been tight for months, with automakers struggling to cope . Semiconductors are critical to a car's function and are a key part of electric vehicles. While demand for semiconductors has surged , there is further to go, BofA said in a 27 Sept. research note on suppliers to the auto industry. "Investors might be underappreciating the newfound pricing power of chip suppliers including ability to pass along rising foundry costs," they stated. A foundry, or fabrication plant, refers to a factory that makes chips for other companies. "Another important factor driving auto semi sales growth in 2021 has been the acceleration in Electric Vehicles (EVs) penetration," the analysts stated. EVs include anything from two to four times the semiconductor "content" of a regular vehicle, they added. Semiconductors also make up parts of advanced driver assistance systems (or ADAS) used in many vehicles. BofA expects the market for ADAS to grow at more than 20% per year. The bank's top stock picks in the sector include: Analog Devices , which the bank likes for its "best in class profitability" and differentiated products. The firm announced a $2.5 billion share buyback program earlier this month, meaning it will return cash to shareholders. German firm Infineon , with the bank praising its "superior organic sales" and "leading positions in large, long growth duration automotive and Industrial semiconductor markets." Microchip Technology , for its mix of "growth, execution, profitability and leverage." The company's CEO Ganesh Moorthy has warned that the chip shortage could last until next year. Texas Instruments , for its "best-in-class profitability and cash flow returns." STMicroelectronics , which is currently trading at a discount to peers according to the bank. BofA expects it to do better than the market in terms of sales and earnings before interest, taxes, depreciation and amortization (EBITDA) over the next two years. Dutch company NXP Semiconductors . "We reiterate auto semis as a top 3 favored group (along with computing and capex/semicap equipment) for the next year," the analysts added. - CNBC's Sam Shead contributed to this report.

Brendan McDermid | Reuters

Bank of America analysts say semiconductors used in the automotive industry are one of their top sectors for 2022, naming six "top picks" set for growth.