On Monday, Aug. 5, stock markets went into a full meltdown, triggered by the release of a disappointing July jobs report. That was followed by a decision by the Bank of Japan to raise its short-term policy rate target to 0.25% from the range of 0% to 0.1%. The bank also announced a sharp decline in the bonds it buys.
Japan’s central bank decision resulted in the unwinding of carry trades. This is where investors borrow in low-interest-rate economies and invest in economies with high yields. Since then, the stock market has shown signs of a recovery.
Amid the recovery, one area to consider investing in is semiconductor stocks. According to an International Data Corporation report, the semiconductor sector could experience an annual growth rate of 20%.
Based on this lucrative long-term projection, getting into the stocks amid the dip could pay off. Below are the three semiconductor stocks you should consider holding for some long-term returns.
Taiwan Semiconductor Manufacturing (TSM)
Taiwan Semiconductor Manufacturing (NYSE:TSM) is a powerhouse in the semiconductor foundry market. The revolution has been made possible by its sophisticated N7+ lithography machines. These machines allow it to produce cutting-edge 3 nanometer and 5 nanometer chips.
Taiwan Semiconductor has lower margins than other chip makers. However, due to its large volume, revenue has exploded in recent years. Its unique business model means that it is at the heart of the global tech revolution.
The company experienced a slight slump in revenue in 2023 amid a global economic slowdown. However, its revenue has since rebounded. Amid the growing adoption of artificial intelligence that requires the fastest chips, TSMC stock is expected to continue rising for years to come.
Growing geopolitical tensions put off investors for a while. However, TSM recently received a multi-billion dollar grant from the U.S. The grant, which will allow it to set up a new plant here, has helped stave off some of the worries about its future.
TSM is having a great run in 2024, rising 65% year-to-date to $168. Over the past 12 months, the stock gained 80%.
Based on its strong revenue growth and great stock performance, analysts remain optimistic about its future. They give it a strong buy rating and forecast an average price of $204.71, a 24.41% increase.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) is a leading chipmaker. Like most other semiconductor stocks, it does not own fabs, relying instead on Taiwan Semiconductor to make them. The company’s chip designs are best-in-class for wireless communications.
Customers for its chips include Apple (AAPL), which uses their chips for 5G wireless connectivity in phones. This model comes at a risk, especially since it relies on a few major firms for most of its revenue.
Losing even one of its major customers could jeopardize Qualcomm’s revenue stream. However, the model has been working for Qualcomm since 1985 and has proven its reliability.
The company’s balance sheet is also strong, giving it leeway to adapt to changes in case market conditions change. For instance, at the end of the full year of fiscal 2023, the company had $8.6 billion in cash and cash equivalents. Those are substantial holdings to support growth and weather any storms.
Revenue growth is also impressive. In its fiscal 2024 third-quarter results, Qualcomm reported GAAP revenue of $9.4 billion, an 11% year-over-year rise. The company returned $2.3 billion to investors during the quarter via dividends and share buybacks.
QCOM has been great for investors in 2024. Since the start of the year, investors have seen 16% in returns, and over the past 12 months, their investments grew 43%.
Forecasts for the stock are upbeat. Analysts expect the price to hit an average of $213.68 in the next twelve months, a substantial 29.54% increase.
Microchip Technology (MCHP)
Microchip Technology (NASDAQ:MCHP) is well-known in the microcontroller integrated circuits industry. Although its stock has been extremely volatile in recent years, it has been decidedly rising in 2024.
Its microcontrollers are mainly used by industrial end-users, which means that its revenue is extremely cyclical. However, with the Fed signaling it could cut its rate as soon as September, this is definitely one of the stocks to hold after the recent meltdown.
A recovering economy could be a boon for Microchip Technology, which has done quite well amid current economic headwinds. Its resilience to weather the most difficult conditions proves that it is a durable stock.
With a drop in the manufacturing sector, MCHP stock is down 12% year-to-date and 8% over the past 12 months. However, with the economy expected to recover when the Fed cuts rates, its revenue could start rising again in coming quarters.
Analysts remain cautiously optimistic about its future, forecasting it could gain 23.98% in the next 12 months to $95.81.
If you are looking to add semiconductor stocks that have bottomed to your portfolio, it does not get better than MCHP. Its close ties to the industrial manufacturing industry mean that cyclic changes in value are expected.
However, once the economy makes a full recovery in 2025 and beyond, MCHP will undoubtedly be among the main beneficiaries.
On the date of publication, Joel Lim did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
