In this video clip from "Semiconductor Revolution," recorded on Feb. 24, Motley Fool contributors Jose Najarro, Trevor Jennewine, Will Healy, and Billy Duberstein each share a few of their favorite semiconductor stocks to hold for the long haul. From growth stocks to dividend stocks and even an exchange-traded fund, this list has something for every type of investor.
Trevor Jennewine: I'm going to give you two answers. I think if you're more focused on passive income, income investor, you're looking for those dividends backed by a solid company. I like Texas Instruments (TXN 0.73%). Texas Instruments has grown its dividend at I believe 25% per year over the last 18 years. At the same time, over that period, the stock is up about 460%, which is about 10% per year. The company's done a great job creating value for shareholders. If you are more of the growth focused investor, I would lean toward Nvidia (NVDA +0.93%). It's valued pretty highly right now, but I think where it is in graphics, gaming, artificial intelligence, potentially the metaverse, self-driving cars, etc. I think Nvidia has a lot of growth avenues in the future.
Jose Najarro: Definitely. You definitely took one of my favorites there Trevor, so I have to think of someone else. Will, any semiconductor stocks you would look at these times?
Will Healy: Well, from a valuation standpoint, my favorite today is Qualcomm (QCOM 0.38%). One reason is the 5G upgrade cycle. If you buy a 5G phone, you have to buy a phone with Qualcomm chip, so that's going to be a lot of guaranteed business in the near term. They're also diversifying away from smartphone chipsets, somewhat they're in the metaverse, they provide the chips for the Oculus Quest headset. They're also in IoT, they're in automotive, they have what's called the digital chassis. They're doing a lot of different things. They're not just resting on their laurels, even though they have a good revenue stream from 5G.
Najarro: Qualcomm's definitely one we talked about in this show before, I think Nick covered its earnings. If any of viewers want to take a quick look at some of our thoughts there, feel free to check the library and just put Qualcomm on the ticker. You should be able to see our, I think our earnings review, which were about three or four weeks ago. Billy, any thoughts?
Billy Duberstein: I'm going to go a little bit more the value route here, really a sector play. I really like the semiconductor equipment stocks, the wafer frontend equipment names like Lam Research (LRCX 1.63%) or ASML (ASML 3.13%). I think my favorite right now is Lam Research. These stocks pretty much operate in an oligopoly for the equipment necessary to make the most advanced chips and they're irreplaceable. It's a picks-and-shovels play on the growth of the chip industry. Of course, we're in a boom time right now, so a lot of people are a little nervous about that. But if you go back and listen to the conference calls of a lot of these executives, they're pretty confident chips are going to grow this year at even after two boom years. Out to 2024, 2025, it looks good.
The industry is also becoming much more steady. I like Lam Research because it has a pretty high percentage of its revenue coming from services, about a third of its revenue comes from services like Apple. Those grow at the installed base. Looks like the company's only trading, it reached its all-time highs right at the end of last year and it's plummeted this year along with the rest of tech. Looks like its trading about 17 times earnings, which I think is a bargain. Pays a dividend and buys back shares, so it can take advantage of these low prices. What I also really like is that it generates huge returns on invested capital. I'm looking at Yahoo! it's about a 76% return on equity. True, we're at the top of the cycle now, but even through the cycle, it's probably going to be about 50, 60. That's what I really like right here. And the sell-off seems pretty overdone.
Najarro: Thanks Billy. I think Adam was able to post all the tickers we were just talking about on Slido. For me, I'm going to give two plays. First, if I was someone who maybe didn't want to focus too much on learning about an individual company, one of my favorite ETFs is SMH. The reason for me it's one of my favorite ETFs, it only has roughly 25 holdings, so it's somewhat concentrated. Its top 10 positions are roughly 55%. I like when the ETF has some form of heavy exposure in the top 10 positions, so that would be my favorite. VanEck Semiconductor ETF (SMH +0.09%), ticker SMH. Now, for my individual play, one I'm really liking right now. Obviously it's more on the growth style, so a little bit higher value than some of the value plays. But that would be AMD (AMD +3.36%). AMD is definitely is seeing an increase in adoption for its epyc processor in data centers. They recently finished the acquisition of Xilinx, which I believe has really strong synergies for the data center market. Obviously, one trading maybe a little bit of a premium, but it is expected to grow at some strong double digits this upcoming year.
