Which investment strategy has stood the test of time? Growth investing. The pros from Wall Street argue that stocks with outsized growth prospects reflect some of the most compelling plays out there. This growth potential extends beyond the near-term, with these names set to deliver handsome returns through 2020 and beyond.
That said, finding stocks that fall into this category can be challenging, to say the least. According to the analysts, one strategy is to take a step back and look at the big picture, focusing on the names that stand to see long-term growth on top of their impressive year-to-date gains.
Bearing this in mind, we used TipRanks’ database to pinpoint two growth stocks on the receiving end of significant praise from analysts. Both tickers have already achieved serious growth over the past 12 months, and are primed to keep climbing higher.
ON Semiconductor (ON)
We’ll start with ON Semiconductor, one of the mid-sized companies in the vital chip industry. ON specializes in chips necessary for sensors, microcontrollers, and optoelectronics, all on the cutting edge of modern high tech. ON saw total sales of $5.2 billion last year, and currently has a market cap of $19.3 billion.
That market cap reflects the company’s share appreciation, which has been an impressive 112% over the past 12 months. ON’s gains include a recent spike, after the 2Q21 financial results showed record levels in revenue and earnings. At the top line, revenue for the quarter came to $1.67 billion, up 38% year-over-year. EPS was reported at 42 cents per share, far better than the net-zero EPS reported in the year-ago quarter. In addition to hitting record levels, ON’s quarterly results came in above the analyst estimates.
Looking forward, the company is guiding toward EPS in the range of 53 to 63 cents, with top-line revenue between $1.66 billion and $1.76 billion, for the third quarter of this year.
The forward outlook is a key point for B. Riley analyst Craig Ellis, who writes: “Chip demand looks persistently strong deep into C22 albeit with an increasingly seasonal profile, in our view, while an arguably under-valued vertically integrated position enjoys a competitive advantage to fabless peers even as new management’s repositioning initiatives with a rich array of technologies, assets, and entrenched customer relationships further unlock LT value.”
The analyst summed up, “Overall, the shares surging to new YTD highs fully digests 2Q’s various “peak cycle” concerns, but with EPS annualizing at $2.96 and with significant structural gains ahead, we see another leg up ahead.”
It should come as no surprise, then, that Ellis stays with the bulls. In addition to a Buy rating, he gives the stock a $58 price target. Investors could be pocketing a gain of ~29%, should this target be met in the twelve months ahead. (To watch Ellis’ track record, click here)
Rapidly growing, highly profitable tech companies are sure generate buss on the Street, and ON is no exception. The company has no fewer than 20 recent analyst reviews, and of those, 17 are to Buy, 2 to Hold, and only 1 is to Sell, giving the stock a Strong Buy consensus view. The shares are priced at $44.82 and have an average target of $53.95, implying a one-year upside of ~20%. (See ON stock analysis on TipRanks)
Silicon Motion Technology (SIMO)
Let’s stay in the chip sector, and take a look at one of ON’s smaller peers. Silicon Motion has a market cap of $2.8 billion, and saw 2020 sales of $540.5 million. To get those sales, Silicon motion produces a range of NAND flash memory chips for the solid-state storage niche, along with chips for flash cards and USB drives. The stock’s recent gains are impressive; it jumped 8% after reporting Q2 results, and overall is up 70% so far this year.
Silicon Motion hit record revenues in Q2 of this year. The company reported $221 million at the top line for the quarter. This was a 62% year-over-year gain, and a 21% sequentially gain. It also marked the third quarter in a row of sequential revenue gains. In GAAP terms, EPS came in at $1.43, compared to 81 cents in the previous year.
In addition to record earnings, SIMO finished the second quarter with a solid cash position. The company saw its net cash rise quarter-over-quarter from $371 million to $412.3 million. The company uses its cash and earnings to fund its dividend, which has a 7-year history of reliability. SIMO next dividend payment is set for August 19, at 35 cents per common share. This annualizes to $1.40, and gives a yield of 2.24%.
5-star analyst Rajvindra Gill, of Needham, is highly impressed with this company, writing of the recent quarterly results: “Silicon Motion reported another strong quarter and guide; we raise our ’21 sales estimate to $903M and our gross margin estimate a full 200bps higher. We foresee SIMO’s sales run-rate exceeding $1B as soon as 4Q21 and note that it has secured enough capacity at TSMC to deliver at least $1.5B in sales in ’22 (backed by purchase orders), with incremental capacity allocations…. After roughly five years of revenue stagnating in the $500M range, we think management has executed a positive structural shift in the business.”
In line with these comments, Gill rates the stock as a Buy, with a $115 price target indicating confidence in an upside of ~43% for the year ahead. (To watch Gill’s track record, click here)
So, that’s Needham’s view, let’s turn our attention now to rest of the Street: SIMO’s 4 Buys, 1 Hold and 1 Sell coalesce into a Moderate Buy rating. Meanwhile, the average price target stands at $98.33 and implies a 22% upside from the current levels. (See SIMO stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.