Goldman says to buy these 4 chip stocks ahead of a green investing boom

Published Sun, Nov 14 20217:00 PM EST

Analysts at Goldman Sachs have picked a raft of semiconductor stocks for investors looking to cash in on a boom in sustainable investing. Investors are increasingly putting their money into so-called ESG assets, which take environmental, social and governance criteria into account. Data from Morningstar showed that $15.7 billion in flowed into U.S. sustainable funds during the third quarter of 2021 , with assets in these funds totaling more than $330 billion as of September. Goldman also sees continued "strong flows momentum" into ESG funds. In a note dated Nov. 10, Goldman analysts led by Brian Singer noted the "critical role" semiconductors will play in areas such as energy efficiency, electric vehicles and renewable energy. However, they added that chip stocks' potential is being underappreciated, "and represents a potential investment opportunity despite strong stock performance over the past 3 years." The analysts said that ESG investor weightings in the sector could be about to increase given semiconductor companies' strong fundamentals and their role as "green enablers" (also dubbed "greenablers" by Goldman). The bank listed the semiconductor stocks it thinks are primed for increased ESG weightings. The companies have meaningful and rising revenue exposure to energy efficiency, automation, electric vehicles or renewable energy, and also contribute to global emission mitigation, according to Goldman. All are buy-rated by the bank. TSMC The analysts like Taiwan Semiconductor Manufacturing Company (TSMC), which they view as a "world leader" in cutting-edge technology. The company is well-positioned to deliver double-digit revenue growth into 2025, the analysts said. "We believe TSMC is at the center of secular growth themes across multiple industries such as digitalization, proliferation of smart technologies and industrial automation, all of which contribute towards better energy efficiency and the discovery of technological solutions that contribute towards climate change mitigation," the analysts noted. Goldman added that there is further scope for ESG ownership to increase given the company's "unique role" as a major "greenabler" within the semiconductor industry. The bank has a price target of 1,028 Taiwanese dollars, an implied upside of 70% to its Nov. 11 closing price of around 606 Taiwanese dollars. ASML ASML is another of Goldman's picks. The Dutch company is the world's only manufacturer of a machine that uses extreme ultraviolet (EUV) technology that chip manufacturers such as TSMC and Samsung use to produce their advanced semiconductors. These semiconductors enjoy higher energy and cost efficiencies in the long-term, the analysts said, cementing ASML's role as a "key enabler." Further price upside for the company's EUV equipment should translate into better gross margin profitability into 2022, the analysts added. Goldman has put a 12-month price target of 880 euros ($1,007) on the stock — an implied 21% upside to the stock's closing price of 730 euros on Nov. 11. StarPower Goldman also likes China-headquartered StarPower for its exposure to electric vehicles — a sector which the bank expects to see secular growth in the next decade. The company produces insulated gate bipolar transistors (IGBTs) — an essential component in electric vehicles and a variety of industrial and home appliance applications, the analysts said. The company is also developing next generation silicon carbide chips, which are expected to significantly improve energy efficiency in EVs, among other applications. Goldman expects the company to post earnings growth of 69% into 2025, largely driven by sales of its EV IGBTs. The bank has ascribed a price target of 505 renminbi ($79.15) on the stock, implying an upside of 8% to its closing price of around 470 renminbi on Nov. 11. Rohm Also on Goldman's list is Japanese semiconductor firm Rohm . The company manufactures a variety of semiconductor products, with automotive chips accounting for around 36% of its revenues. "We believe Rohm is well-positioned to benefit from the growth in EV adoption, and believe investors' recognition of the company's critical role in driving semiconductor innovation could support further support its ESG weighting," the analysts said. Goldman has ascribed the stock a 12-month target price of 12,000 Japanese yen ($105). The stock closed at 11,180 Japanese yen on Nov. 11.

A Goldman Sachs Group Inc. logo hangs on the floor of the New York Stock Exchange in New York, U.S., on Wednesday, May 19, 2010.

Daniel Acker | Bloomberg | Getty Images

Analysts at Goldman Sachs have picked a raft of semiconductor stocks for investors looking to cash in on a boom in sustainable investing.