Can the SOX outperform the S&P for the third consecutive year in 2018? We don’t think so… and recommend investors to buy/own stocks with idiosyncratic drivers and clear upside to Street estimates
In terms of single stock, our top picks in Semis and Semi Cap are NVDA and ENTG respectively – both Buy-rated and on the Conviction List. We expect pushback to our call on NVDA following the 81% stock price appreciation in 2017 (and +224% in 2016), but would argue that Street numbers remain too low (note our FY19 EPS forecast is +29% vs FactSet) with our constructive view on Datacenter (Volta product cycle near-term, an acceleration in AI/ML adoption long-term) and Gaming (product cycle near-term, sustained growth in Gaming population long-term) likely driving the delta. On ENTG, we continue to see discovery value and would point to its idiosyncratic growth opportunities (e.g. advanced filtration, advanced deposition materials, specialty coatings, etc) as a potential source for revenue and earnings upside. We also upgrade XLNX from Neutral to Buy (add to CL) and see early signs of reversion to growth in Comms, further clarity around its Cloud Datacenter acceleration opportunity, and increased capital return post tax reform as potential catalysts for the stock. On the cautious end of the spectrum, we remain Sell-rated on AMD and TXN
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