Semiconductors are the core infrastructure powering the Information Age. Still, they’re subject to swings in the broader economy because customers often stockpile chips ahead of demand, and investors seem to believe that inventory levels are correcting - over the past six months, the industry has shed 23.5%. This drawdown was noticeably worse than the S&P 500’s 5.2% loss.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Taking that into account, here is one semiconductor stock boasting a durable advantage and two we’re passing on.
Two Semiconductor Stocks to Sell:
Allegro MicroSystems (ALGM)
Market Cap: $3.52 billion
The result of a spinoff from Sanken in Japan, Allegro MicroSystems (NASDAQ: ALGM) is a designer of power management chips and distance sensors used in electric vehicles and data centers.
Why Should You Sell ALGM?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 7.6% annually over the last two years
- Earnings per share fell by 19.8% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Free cash flow margin dropped by 9.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $18.74 per share, Allegro MicroSystems trades at 38.1x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than ALGM.
Amkor (AMKR)
Market Cap: $4.34 billion
Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ: AMKR) provides outsourced packaging and testing for semiconductors.
Why Should You Dump AMKR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.6% annually over the last two years
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Gross margin of 14.6% is below its competitors, leaving less money to invest in areas like marketing and R&D
Amkor is trading at $17.70 per share, or 8.6x forward price-to-earnings. Read our free research report to see why you should think twice about including AMKR in your portfolio.
One Semiconductor Stock to Watch:
Lam Research (LRCX)
Market Cap: $91.35 billion
Founded in 1980 by David Lam, the man who pioneered semiconductor etching technology, Lam Research (NASDAQ: LRCX) is one of the leading providers of wafer fabrication equipment used to make semiconductors.
Why Are We Positive On LRCX?
- Highly efficient business model is illustrated by its impressive 29.6% operating margin, and it turbocharged its profits by achieving some fixed cost leverage
- LRCX is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its recently improved profitability means it has even more resources to invest or distribute
- ROIC punches in at 63.1%, illustrating management’s expertise in identifying profitable investments
Lam Research’s stock price of $71.64 implies a valuation ratio of 18.9x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
