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Finance

United Microelectronics and ASE Technology

Most companies in the tech space have been large beneficiaries of the COVID-19 pandemic. The  sector has thrived with changes in consumer and business behavior wrought by the public health crisis. Many investors are now shifting out of tech stocks into non-tech names as a strategy to avoid a pull-back in the tech sector in the event of a return to the old normal with the pandemic’s defeat. But the ongoing developmental wave in artificial intelligence (AI), 5G network, cloud computing, and virtual reality could continue to drive the sector’s vitality for years to come. As such, favorable opportunities for investors in the space will likely continue to be created.

There is no doubt that many tech stocks are overpriced at this point. However, there are some relatively overlooked  gems in the industry that are trading at attractive  levels.

United Microelectronics Corporation (UMC) and ASE Technology Holding Co. Ltd. (ASX) are two fundamentally sound tech stocks that are currently trading under $10 and we think could offer rewarding upside going into 2021.

United Microelectronics Corporation (UMC)

UMC is a leading global semiconductor wafer foundry. The company provides high quality IC production with a focus on logic and specialty technologies that serve every major sector of the electronics industry. UMC operates 12 fabs located throughout Asia, with a maximum capacity of more than 750,000 8-inch equivalent wafers per month. It operates primarily through Wafer Fabrication and New Business segments.

UMC, in association with eMemory, a global leader in the embedded non-volatile memory market, and its subsidiary, PUFsecurity, has developed the world’s first PUF (Physical Unclonable Function)-based secure embedded flash solution.  PUFsecurity’s PUFflash integrates eMemory’s NeoPUF into UMC’s 55nm embedded flash technology platforms to deliver a secure embedded flash.

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UMC’s revenue and EPS has grown at a CAGR of 4.7% and 28%, respectively, over the past three years. In the third quarter  ended September 30, 2020, UMC reported revenue of $4.2 billion, growing 18.9% year-over-year, on the back of stable demand for applications in wireless connectivity, power management ICs used in smartphones, and high-speed interface I/O controllers. Wafer shipments totaled  2.25 million 8-inch equivalent wafers, while utilization rate remained firm at 97%. UMC’s EPS for the quarter came in at $0.129, compared to the year-ago value of $0.043.

UMC witnessed a sharp rise in wafer shipments this year, propelled by an ongoing work-and-learn-from-home trend. This has resulted in consistent monthly sales revenue year-over-year growth. According to the company, “the current industry landscape appears to show favorable supply and demand dynamics towards foundry.” Hence, analysts expect UMC’s current-year revenue and EPS to increase 25.5% and 138.5%, respectively, year-over-year.

UMC has posted an impressive 210% year-to-date gain to close yesterday’s trading session at $8.31. Moreover, the stock is presently trading just 11.6% below its 52-week high of $9.40.

How does UMC stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

A for Industry Rank

B for Overall POWR Rating

The stock is also ranked #41 of 87 stocks in the Semiconductor & Wireless Chip industry.

ASE Technology Holding Co. Ltd. (ASX)

ASX is the leading provider of semiconductor manufacturing services in assembly and test. The Company offers turnkey solutions covering front-end engineering test, wafer probing, and final test, as well as IC packaging, materials, and electronic manufacturing services through USI with superior technologies, breakthrough innovations, and advanced development programs. It operates through the following segments – Packaging, Testing, Electronic Manufacturing Services (EMS), and Others.

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Last week, ASX, in association with Chunghwa Telecom (CHT), an integrated telecommunications services company, and Qualcomm Technologies (QCOM), a leading wireless technology innovator, unveiled the world’s first smart factory powered by a private 5G mmWave network located at ASE Kaohsiung, Taiwan. Moreover, this month, in a $421.5 million deal, SX completed the acquisition of Asteelflash Group, a European leader in the electronics manufacturing services industry, through its subsidiary, Universal Scientific Industrial (Shanghai) Co. Ltd. Over the past three  years, ASX’s revenue has grown at a CAGR of 16.1% while EPS has declined at a rate of 6.1%. Revenues for the last reported  quarter ended September 30, 2020, have improved 5% year-over-year to $4.26 billion, due y to contributions from packaging operations. Communication sub-industry contributed 53% and 40% to the Semiconductor Assembly, Testing and Material (ATM), and EMS operations, respectively. EPS came in at $0.105, compared to the quarter-ago value of $0.085.

ASX is now  moving many of its customers to long-term contracts  from on-demand services. The company also plans to incorporate 5G use-case applications in the building plans of all new factories to facilitate unrestricted and fast network coverage while stimulating the industry to develop more enterprise use-cases for private 5G networks. In line with the progress, analysts expect ASX’s current-year revenue and EPS to rise 20.5% and 28%, respectively, year-over-year.

With a year-to-date gain of 3.2%, ASX closed yesterday’s trading session at $5.74. The stock is up 42.8% in the past three months and is currently  trading just 3.4% below its 52-week high of $5.94.

According to the POWR Ratings, ASX is a “Strong Buy.” It also has an “A” for Trade Grade, Buy & Hold Grade and Industry Rank, and a “B” in Peer Grade. In the 87-stock Semiconductor & Wireless Chip industry, it is ranked #17.

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UMC shares were trading at $8.65 per share on Wednesday morning, up $0.34 (+4.09%). Year-to-date, UMC has gained 234.51%, versus a 18.04% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More…

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