Chips stocks have suffered from persistent volatility during 2011 as fear over weakened demand for consumer electronics and production interruptions following the earthquake and nuclear disaster in Japan. Those concerns appear to subsiding; however, at least according to UBS. The bank has upgraded a handful of semiconductor makers as of Monday trading, indicating the period of potential losses may be heading to a halt.
The selections for upgrade included Analog Devices (ADI), which UBS boosted to Buy from Neutral. PT outlook also improved from $32 to $38. After the recent sector upgrade, Analog seems to be ahead of some of its competitors in terms of a comeback. The stock’s current level seems to factor in continued challenges but a recent sector upgrade indicates the worst may be behind the semiconductor segment. Beyond the optimism toward semiconductors, Analog recently boasted improvements in communications equipment of over 20 percent and auto segments growth of around 12 percent. The company’s low P/E ratio of 12.5 versus its 5 year average of 17 makes Analog look attractive.
Texas Instruments (TXN)- Texas Instruments has noticed the weakening demand but has restructured its business strategy in order to achieve maximum profitability in the current market. The largest maker of analog chips recently increased its quarterly dividend by 31 percent after electing to concentrate on materials that generate larger margins.
The decision to shift to a greater percentage of analog and embedded processing technologies was drive by their ability to generate higher returns and help drive cash flow. UBS reacted by upgrading from Neutral to Buy with a $32 price target.
Maxim Integrated Products (MXIM)- Maxim has been the recipient of riding demand from phone producers and low exposure to distributors. This, in addition to strong dividends prompted enthusiasm at UBS. Maxim, a maker of linear and mixed-signal integrated circuits, is also benefitting from the notion that semis characteristically bottom with negative year-over-year unit growth, which is where things are at present. This means that Maxim could benefit from the natural swings of the market in addition to its individuals factors of demand. The company was upgraded to a Buy from Neutral by UBS.
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