Long-term risk-averse investors prefer large-cap, highly traded stocks that are less volatile. While such stocks are a safer investment and give out dividends, they may not necessarily deliver strong capital appreciation (or an increase in stock price).
Generally, growth stocks are the ones that deliver above-average capital appreciation, but such stocks may or may not give dividends, because they’re either small companies that reinvest their capital in future growth trends or cyclical companies that create cash reserves to survive the downturn. Most technology stocks are growth stocks.
The fastest-growing semiconductor stocks
As of December 22, 2017, Micron Technology (MU) was the fastest-growing stock, rising ~90.3% over the past year. NVIDIA (NVDA) rose 82.3%, Lam Research (LRCX) rose 73.4%, Teradyne (TER) rose 67%, and ON Semiconductor (ON) rose 64% in the past 12 months.
All the above stocks except Teradyne reported the highest revenue growth in the past 12 months. This drove investor confidence and pushed these stocks upward.
Despite such strong growth, all the five stocks are trading below their consensus price targets and their 52-week highs. This shows that Wall Street analysts are bullish on these stocks because of their strong earnings potential—and that they expect these stocks’ prices to increase over the next year.
Micron is a cyclical stock and is currently in the midst of a memory market uptrend. While semiconductor memory has gained 75%, Micron has gained 90.25% in the past year. Strong memory prices also pushed Micron into the top five semi stocks by revenue and made it the stock with highest revenue growth.
Micron is currently trading at $42—lower than its consensus price target of $58 and its 52-week high of $49.89.
NVIDIA is a growth stock and is at the forefront of the AI revolution. The stock has been on a growth spree since 2016, when it launched its Pascal GPU (graphics processing units). Its stock price growth has slowed from triple digits in 2016 to double digits in 2017, but this growth is likely to continue in 2018.
NVIDIA is currently trading at $197—lower than its consensus price target of $226.5 and its 52-week high of $218.67.
Lam Research benefitted from the memory trend as the demand for 3D NAND (negative AND) equipment has increased. Lam Research is currently trading at $184—lower than its consensus price target of $227 and its 52-week high of $219.7.
Teradyne and ON
Teradyne is currently trading at $42 lower than its consensus price target of $46 and its 52-week high of $44.62. ON is currently trading at $20.87 lower than its consensus price target of $24 and its 52-week high of $22.15.
Other than capital gains, investors earn returns from a stock through dividends. Next, we’ll look at the semi companies with highest dividend yields.