The United States has positioned itself to be able to withstand shocks to the aggressive interest rate cycle by the Federal Reserve. Its economy is continuing to shape out as a “soft landing,” or a term meaning a moderate economic slowdown following a period of growth. This is in part of the Federal Reserve, as banks aim for a soft landing when they raise interest rates from inflation. In addition, household and corporate debt has a fixed rate so that debt payments will not instantly rise when rates go up. Interestingly, the current levels of debt are lower than historical records, which is unexpected considering the prolonged period of zero interest rates that encouraged numerous businesses to take on significant borrowing. This positive news is perfect for stocks to grow in the stock market, and these three stocks in particular are suited to continue growing to attractive entry points as the economy levels out.
GlobalFoundries Incorporated (GFS)
GlobalFoundries Incorporated (NASDAQ:GFS) is an American semiconductor manufacturing and design company with strong financials. Q2 revenue of $1.84 billion has beat analyst expectations by $10.2 million. EBITDA grew 52% year-over-year above the sector median, and a 16.6% EBIT margin demonstrates high profitability. Management is strong, evident in a 16.4% ROCE and 8.55% ROTA.
There are key partnerships that contribute to GlobalFoundries’ growth. Collaborating with the Georgia Institute of Technology on semiconductor research will optimize manufacturing processes and talent recruitment, boosting future revenue. The company’s partnership with Lockheed Martin (NYSE:LMT) focuses on innovating designs, performance, and antifragility in semiconductors. GlobalFoundries has also partnered with General Motors (NYSE:GM) to supply semiconductors produced from GlobalFoundries’ advanced semiconductor facility in New York.
To keep up with the semiconductor industry’s rapid growth, GlobalFoundries purchased 800 acres in Malta, NY, allowing for the expansion of the advanced semiconductor facility. Additionally, the company finalized an agreement with STMicroelectronics to jointly operate an $8.3 billion high-volume semiconductor manufacturing facility in France.
With GFS stock up 16.4% YTD, strong buy ratings from analysts, and an average predicted 12-month upside of 21.3%, GFS is currently at a very attractive entry point for investors. Strong financials, partnerships, and an ability to meet the ever-increasing demand of the semiconductor industry are all reasons to buy this stock.
ASML Holding (ASML)
ASML Holding (NASDAQ:ASML) is a world leader in producing equipment for microchips. It specializes in lithography machines that are essential components in microchips.
ASML stock is up 30.71% YTD. The lithography market is valued at $24.66 billion in 2023 and is projected to reach $35.21 billion by 2028 from a 7.38% CAGR. The company reported FYQ2 revenue of $7.73 billion, up 39.86% YoY due to its DUV lithography systems. The EPS is currently $20.73 and FCF has a 4.4% yield.
ASML is the only company that produces extreme ultraviolet (EUV) lithography machines used in processors today, effectively giving it a monopoly. They have mastered creating the sophisticated nature of EUV machines as competitors have not attempted to produce them. The dominance of this technology makes it possible for ASML to control 90% of the lithography market, and notable customers include Intel and Samsung. With ASML’s 3800 EUV machines set to be shipped out between 2024 and 2025, the company will prosper from higher average selling prices.
Yahoo Finance reports 7 analysts with a 1-year mean price target of $755.19, ranging from a low of $496.25 to a high of $865.71. ASML’s monopolistic presence in the industry is proving to support the company’s longevity, acting as a safe long-term investment that captures growth.
Microchip Technology (MCHP)
Microchip Technology (NASDAQ:MCHP) makes embedded control solutions and has over 2,800 microcontroller products. MCHP stock is up 34.73% YTD with 12 “buy” ratings on Yahoo Finance and a 1-year mean price target of $97.97 that range from $80.00 to $125.00.
Microchip reported excellent financials, with a $1.62 EPS above the high-end of guidance and a $2.23 billion revenue up 21.2% YoY. The company hit multiple record highs, such as a $907.8 million net income and specifically FY23 net sales of $8.44 billion up 23.7% YoY. This was mainly due to the surge in semiconductor usage in recent years and the demand for efficient microchips in artificial intelligence (AI).
Although the global semiconductor market is expected to decline by 10% in 2023, there are many reasons why Microchip will persist. The end markets the company has the most exposure to, and the applications are still holding strong despite macroeconomic conditions. A vast majority of Microchip’s products are built on technologies that require specialized trailing edge capacity, which has been the most constrained over the last few years. Even so that there is less opportunity to over ship to consumption, giving Microchip an advantage. Lastly, a focus on organic growth by concentrating on total system solutions and higher growth megatrends led to further share gains or a revenue tailwind for Microchip.
The numerous advantages Microchip has in a declining semiconductor market prove to show that MCHP stock is in a great position for a buy, as it will receive top-notch growth when the market recovers.
On the date of publication, Michael Que 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.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.