Our Focus List stocks — our top recommendations — span the spectrum from growth to value. One stock from this list — ON Semiconductor (ON) — stands out as favorite for capital gains over the next 12 to 18 months, asserts Rich Moroney, editor of Dow Theory Forecasts.
While both supply and demand issues have rendered the outlook for semiconductor stocks murkier in recent months, our top tech selection has remained above the fray.
ON Semiconductor delivered a total return of 19% over the last six months and 7% over the last 12 months, among the best in an industry averaging negative returns.
The shares have held up in part because of ON’s operating momentum (sales up 27% over the last 12 months and 13% annually over the last three years and per-share profits up 132% and 44%, respectively). But of more import is ON’s positioning for the future.
The consensus calls for per-share profits to increase 16% in the December quarter, fall 14% in 2023, then bounce back to 11% growth in 2024. We see upside to the 2023 target and have confidence in future growth mostly because ON has snagged seats at the growthiest tables among semiconductor end markets.
According to the research aggregator Statista, 37% of the world’s revenue share of semiconductors went into computing products in 2020 and 32% into communications products.
Those numbers are projected to fall to 34% and 29%, respectively, in 2022, while automobiles account for 14% of revenue share, up from 8% in 2020. ON’s focus on automotive, industrial, and consumer end markets positions the company for industry-beating growth.
