While the semiconductor industry has been struggling with macroeconomic headwinds, its long-term prospects look bright amid robust demand across sectors. Also, encouraging government investments are anticipated to boost the industry.
Therefore, it could be a good idea to invest in fundamentally strong and wallet-friendly chip stocks Renesas Electronics Corporation (RNECF) and Nikon Corporation (NINOY).
Despite a cyclical market slump that set in during the second half of 2022, global semiconductor sales for the year rose by 3.3% to $574 billion, an all-time record.
Furthermore, the first CHIPS for America financing opportunity has been announced by the Biden-Harris Administration in an effort to revive the American semiconductor industry. The CHIPS and Science Act provides $39 billion in subsidies for the semiconductor industry.
The semiconductor market is expected to grow at a CAGR of 12.2% until 2029. Moreover, investors’ interest in semiconductor stocks is evident from the VanEck Semiconductor ETF’s (SMH) 28.9% returns over the past six months.
Let’s delve deeper into the fundamentals of the stocks mentioned above.
Renesas Electronics Corporation (RNECF)
Headquartered in Tokyo, Japan, RNECF researches, designs, manufactures, sells, and services semiconductors in Japan, China, North America, Europe, the rest of Asia, and internationally. The company operates through Automotive Business and Industrial/Infrastructure/IoT Business segments.
On March 22, 2023, RNECF announced that its subsidiary, Panthronics AG (“Panthronics”), a fabless semiconductor company specializing in high-performance wireless solutions, has entered into a formal agreement under which Renesas would acquire Panthronics in an all-cash transaction.
The acquisition will broaden Renesas’ connectivity technology portfolio by expanding its reach into high-demand Near-Field Communication (NFC) applications in fintech, IoT, asset tracking, wireless charging, and automotive.
RNECF’s forward EV/Sales of 2.60x is 6.1% lower than the industry average of 2.77x. Its forward Price/Sales multiple of 2.30 is 14.9% lower than the industry average of 2.70.
RNECF’s trailing-12-month gross profit margin of 57.28x is 13.8% higher than the 50.35x industry average. Its trailing-12-month EBIT margin of 28.43% is 517% higher than the 4.61% industry average.
RNECF’s revenue increased 51% year-over-year to ¥1.50 trillion ($113.90 billion) for the year ended December 31, 2022. Its operating profit grew 144% from its year-ago value to ¥424.17 billion ($3.22 billion), while its total profit came in at ¥256.63 billion ($1.95 billion), up 114.7% year-over-year.
The consensus revenue estimate of $11 billion for the year ending 2023 represents a 34.6% increase year-over-year. The stock has gained 68% over the past six months to close its last trading session at $14.30.
RNECF’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has a B grade for Stability, Value, Momentum, and Quality. Within the B-rated Semiconductor & Wireless Chip industry, RNECF is ranked #2 out of 91 stocks. To see additional POWR Ratings for Growth and Sentiment for RNECF, click here.
Nikon Corporation (NINOY)
Headquartered in Tokyo, Japan, NINOY manufactures and sells optical instruments in Japan, North America, Europe, China, Thailand, and internationally. It operates through the following segments: Imaging Products Business; Precision Equipment Business; Healthcare Business; Components Business; Industrial Metrology, and Others.
The Precision Equipment Business segment offers FPD lithography systems and semiconductor lithography systems.
NINOY’s forward EV/Sales of 0.40x is 64.2% lower than the industry average of 1.12x. Its forward Price/Sales multiple of 0.69 is 18.1% lower than the industry average of 0.85.
NINOY’s trailing-12-month gross profit margin of 45.88x is 31.1% higher than the 35x industry average. Its trailing-12-month EBIT margin of 8.45% is 8.8% higher than the 7.77% industry average.
NINOY’s revenue increased 12.2% year-over-year to ¥456.10 billion ($3.46 billion), in the third quarter that ended December 31, 2022. Its operating income increased 7.8% year-over-year to ¥50.62 billion ($384.21 million). Moreover, its net income increased marginally year-over-year to ¥39.46 billion ($299.46 million).
NINOY’s revenue is expected to increase by 6.4% year-over-year to $1.22 billion for the quarter ending March 2023. Its EPS is expected to grow 75% year-over-year to $0.14 for the same period. NINOY’s shares have gained 15.5% over the past three months to close the last trading session at $10.
NINOY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B in Growth, Value, Stability, and Quality. Within the same industry, it is ranked #9. Click here to access additional POWR Ratings for Sentiment and Momentum for NINOY.
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RNECF shares were trading at $14.30 per share on Wednesday morning, down $0.46 (-3.12%). Year-to-date, RNECF has gained 58.01%, versus a 7.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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