Increasing COVID-19 cases due to the fast-spreading Delta variant, rising inflationary pressure, and continued geopolitical tensions related to the government’s collapse in Afghanistan have heightened investors’ anxiety over the past few weeks. Consequently, many investors are shifting their focus to quality growth stocks to dodge short-term market fluctuations and benefit from these businesses’ impressive long-term growth prospects. This is evident in the SPDR Portfolio S&P 500 Growth ETF’s (SPYG) 14.3% returns over the past three months.
The FDA’s full approval of Pfizer (PFE) and BioNTech’s (BNTX) COVID-19 vaccine propelled stocks to close higher yesterday. Furthermore, according to Ataman Ozyildirim, Senior Director of Economic Research at the Conference Board, the real GDP growth for 2021 could reach 6% year-over-year. These factors could bode well for already well-performing growth stocks.
So, we think the shares of ON Semiconductor Corporation (ON), Dillard’s Inc. (DDS), and Cohu Inc. (COHU)—companies that possess solid growth attributes—could be ideal bets now.
Click here to checkout our Semiconductor Industry Report for 2021
ON Semiconductor Corporation (ON)
Together with its subsidiaries, ON manufactures and distributes semiconductor components for a wide range of electronic products across the world. Power Solutions Group (PSG); Advanced Solutions Group (ASG); and Intelligent Sensing Group (ISG) are the company’s three operational segments . It offers its products to original equipment manufacturers, distributors, and electronic manufacturing service providers. ON is based in Phoenix, Ariz.
This month, ON unveiled its new trade name, “onsemi,” and refreshed the brand as the next stage in its journey to become the premier provider of intelligent power and sensing solutions. The company has strengthened its approach to generating disruptive innovation that contributes to a sustainable ecosystem of high-growth megatrends that include vehicle electrification, improved safety, alternative energy, and factory automation.
Last month, ON launched a new addition to its XGS series of CMOS image sensors. The XGS 16000 is a 16 Megapixel sensor designed for high-quality global shutter imaging in industrial automation applications, such as robots and inspection systems.
For its second fiscal quarter, ended July 2, 2021, ON’s revenue increased 37.6% from its year-ago value to $1.67 billion. Its operating income grew 554.8% year-over-year to $282.2 million. Its net income came in at $184.1 million, versus a $1.4 million net loss in the prior-year quarter. Also, the company’s adjusted EBITDA surged 114.5% year-over-year to $453.1 million over this period. Its revenue increased at a 11.5% CAGR over the past five years, and its levered free cash flow increased at a 34.5% annualized rate over the past three years.
The company’s EPS is expected to grow 189.4% year-over-year to $2.46 in the current year. In addition, analysts expect ON’s revenue to increase 25.2% in its fiscal year 2021. ON’s stock has gained 102.9% over the past year and 29.6% year-to-date.
ON’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ON is also rated a B grade for Growth, Value, and Momentum. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #28 of 99 stocks.
To see additional POWR Ratings for Stability, Quality, and Sentiment for ON, click here.
Dillard’s Inc. (DDS)
DDS in Little Rock, Ark., owns retail department stores in the Southeastern, Southwestern, and Midwestern regions of the United States. Its stores provide clothing for men, women, and children, and accessories, cosmetics, home furnishings, and other consumer items. In addition, the company undertakes general contracting construction work.
In May, DDS announced that its board of directors had approved a new share repurchase program that will allow the company to acquire up to $500 million of its Class A common stock. This decision demonstrates the company’s robust financial health.
DDS’ net sales increased 70.9% year-over-year to $1.57 billion in its second fiscal quarter, ended July 31, 2021. Its cash and cash equivalents grew 707.6% from their year-ago value to $669.5 million. And its net income was $185.7 million for this period, versus an $8.6 million net loss in the second quarter of 2020. Its EPS totaled $8.81, compared to a $0.37 loss per share f in the prior-year period. Its net income and EBITDA grew at CAGRs of 21% and 15.6%, respectively, over the past three years.
The company’s EPS is expected to grow 866.5% year-over-year to $21.31 in its fiscal year 2021. Analysts expect DDS’ revenue to increase 39.9% year-over-year to $6.2 billion in the current year. The stock has gained 693.7% over the past year and 220.3% so far this year.
DDS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. DDS also has an A grade for Value, Growth, and Quality. The stock is ranked #5 of 64 stocks in the A-rated Fashion & Luxury industry.
Beyond the POWR Ratings grades I have just highlighted, one can see the DDS ratings for Sentiment, Stability, and Momentum.
Cohu Inc. (COHU)
COHU operates internationally in the semiconductor test and inspection equipment and printed circuit board (PCB) test equipment industry. In addition, the Poway, Calif.-based company it provides semiconductor and electronics manufacturers and test subcontractors with semiconductor test and inspection handlers, micro-electromechanical system (MEMS) test modules, thermal subsystems, semiconductor automated test equipment, and bare board PCB test systems.
Last month, COHU announced that it had prepaid an additional $100 million of its term loan B (TLB) facility. As a result, its outstanding principal on its TLB has been reduced to nearly $104 million, exhibiting strong fundamental performance.
During the second quarter, ended June 26, 2021, COHU’s net sales increased 69.9% year-over-year to $244.80 million. The company reported a $114.52 million operating profit, versus a $528,000 operating loss in the prior-year quarter. Its net income came in at $95.10 million for this period, compared to a $4.74 million net loss in the second quarter of 2020. Its EPS totaled $1.92, compared to an $0.11 loss per share in the prior-year period. Its net income and EPS have increased at CAGRs of 54.6% and 34.1%, respectively, over the past three years.
The $3.04 consensus EPS estimate for the current year represents a 155.5% increase year-over-year, while the $902.79 million consensus revenue estimate for the current year represents a 41.9% increase from the same period last year. The stock has gained 79.6% over the past year and 10% over the past nine months.
COHU’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. COHU also has an A grade for Growth and Value, and a B for Momentum. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #45 of 99 stocks.
Click here to see additional POWR Ratings for Sentiment, Quality, and Stability for COHU.
Click here to checkout our Semiconductor Industry Report for 2021
ON shares were trading at $43.06 per share on Tuesday morning, up $0.63 (+1.48%). Year-to-date, ON has gained 31.56%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More…
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