With tech stocks seeing a strong start to 2012, you'd expect the cyclical semiconductor industry to contain some strong outperformers. With 82 out of the 150 companies in the industry with market caps greater than $500 million seeing gains this year, the general trend has been up.
Yet, May has definitely hit semiconductor stocks hard. The widely followed Philadelphia Semi Index is down 15.8% from highs reached just two months ago. Fears of a global slowdown have been stoked as all eyes turn to the eurozone. Such a situation could be brutal on a semiconductor industry that's just recovering from a huge downturn in 2009.
Today, we're looking at a group of semi companies that have been able to hold onto their gains, and we'll see what's led them to such strong results in the first five months of the year.
The top five semi stocks of 2012
| Company Name | Market Cap | Year-to-Date Performance |
|---|---|---|
|
Mellanox Technologies |
$2.39 billion | 81.7% |
|
Cirrus Logic |
$1.76 billion | 73.2% |
|
Veeco Instruments |
$1.29 billion | 60.1% |
|
Skyworks |
$4.87 billion | 58.3% |
|
NXP Semiconductors |
$5.41 billion | 42.1% |
Source: S&P CapitalIQ. Semi stocks with market caps over $500 million that have primary listings on US exchanges.
Looking at the list, one thing immediately jumps out: Three of the five are big mobile plays. Both Cirrus Logic and Skyworks have been riding in Apple's wake this year as key iSuppliers. Cirrus Logic has expanded across Apple's entire product line while Skyworks has taken more RF content in the newest iPad and iPhone 4S.
While NXP hasn't become an Apple supplier yet, the company is at the forefront of near-field communication technology, a technology which every year looks closer to breaking into the mainstream. My larger concern surrounding the company is its shaky balance sheet (over $3 billion in net debt). That could turn into a huge liability if Europe does pull back into a steep recession and the global economy goes through a slowdown.
Finally, we come to Mellanox and Veeco. Mellanox makes the list after crushing first-quarter earnings; the company posted earnings more than double the previous year at $0.51 per share. That blew away analyst estimates of $0.34. Likewise, Veeco also blew away its last earnings, posting $0.49 per share while analysts had set their target on a $0.19 adjusted profit. Unfortunately for Veeco, in the prior year the company posted earnings of $1.33. Veeco's bounce isn't so much about the company's strength, but avoiding a nightmare scenario.
Short-term winners, long-term winners
One of the more interesting things about the list is how these companies aren't just winners in 2012, they're all long-term winners as well. Just take a look at these market-crushing, five-year returns from the group.
Five-Year Return
| Company Name | Five-Year Performance |
|---|---|
| Mellanox Technologies | 193% |
| Cirrus Logic | 265% |
| Veeco Instruments | 89% |
| Skyworks | 250% |
| NXP Semiconductors | 56% |
Source: S&P Capital IQ.
The key for these companies has been their ability to find a strong niche in growing industries. So, with several members being at the center of ongoing areas of growth like mobile, there's plenty of room for more outperformance across the next five years as well.
The mobile revolution -- the future of tech
To help investors navigate the continuing revolution in mobile that led to several of the biggest gains in the semi industry this year, we've compiled a free report named "The Next Trillion Dollar Revolution", which not only describes why the mobile revolution will dwarf any other technology revolution seen before it, but also names a company at the forefront of the trend. Hundreds of thousands have requested access to previous reports, and you can access this new report today by clicking here -- it's free.
