Countries and businesses are investing a lot of money in additional chipmaking capacity around the world, but the lead and pay-off times on these investments are very lengthy, leading experts to forecast that chip shortage will persist until 2022 and possibly beyond.
Apple Inc. (NASDAQ: AAPL) is the largest company currently shopping around for new suppliers in an attempt to diversify its supply network. The impetus for the shopping comes on the heels of a key Japanese supplier having issues, and exposing the vulnerability of Apple’s supply chain.
It is estimated that chip suppliers like Samsung Electronics Co., Micron Technology Inc., and Hynix Inc. are currently being considered by Apple as potential suppliers. Assumptions are made that the largest chip providers will pick up the slack and help Apple offset the risk of potential further disruption of supply chains.
Thus, the following chip plays could be interesting to track in light of the new developments surrounding semiconductor shortages and Apple’s buying spree.
1. iShares MSCI South Korea ETF (NYSEARCA: EWY)
A well-diversified portfolio is vital for long-term growth and investing success. Investing in an ETF represents a well-diversified investment and iShares Korea ETF provides a basket of South Korean equities among them are Hynix, Samsung, and LG.
Samsung and LG have their battery and electronics businesses separate from their other business and these are also part of the ETF. South Korea ETF is cheaper than most developed equity markets at the moment, despite a solid economy and above-average growth prospects.
The South Korean economy is predicted to grow between 3% and 4% annually for the foreseeable future. With the ETF trading in the lows after June 2021 highs, but also staying currently above its 20 and 50-day Simple Moving Averages it could represent a potential entry position.
Additionally, the only way U.S. and EU investors can invest in companies like Samsung and LG is through ETFs and the iShares one is the best in class.
2. Micron Technology (NASDAQ: MU)
On March 29th, 2022 Micron released their earning results showing an increase in revenue by 25% and adjusted earnings per share up a whopping 277%. Needless to say, the results beat all analyst’s expectations and showed the resiliency of the business in the face of global adversities.
Chip shortages and pricing power that the company has could serve as future headwinds. The stock traded choppy in 2022, bursting through 20-50-200 SMAs after earnings beat. Keeping an eye for a good entry position could be rewarding.
On Wall Street analysts are stating that MU is a ‘Strong Buy’ with average price targets of $116.83 a potential increase of 47.59% from the current trading price of $79.16. Almost all analysts agree about MU and after it delivered a stellar quarter we can see why.
3. KLA (NASDAQ: KLAC)
The thesis for having an eye on KLA is simple, as the company provides semiconductor manufacturing solutions, industry outlook, and investments around the world in chip production capacity all point to companies like KLA.
Part of the story around KLA is the growth of their margin from 30% to 36% from 2020 to 2021. Throwing off cash, growing nicely coupled with the demand for chips worldwide is a one-two punch investors can utilize with a high-quality chip play such as KLA.
In 2022 as expected due to various geopolitical tensions the stock traded choppily, recently showing more strength by moving above 20-50-200 SMAs. News on Apple and other large companies shopping around could be a potential catalyst to move the stock higher along with other chip plays.
On Wall Street analysts agree that the stock is a moderate buy with average price targets at $444.19 a potential upside of 18.82% from the current price of $373.82.
The highest price analysts have on the stock is $545 which could be potentially reached if the chip shortage continues.
With chips going into almost everything today from doorbells to our refrigerators thanks to digitization semiconductor plays are here to stay.
Apple is usually the canary in the coal mine signaling what other large tech companies could do. If they decide to diversify their chip supply chains we might see a run-up on these semiconductor plays.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.