The United States has snapped out of its pandemic-driven recession. The government has been deploying sizable investment packages to propel the growth of almost every sector. Most recently, on August 24, the House voted to advance the $1 trillion bipartisan infrastructure bill while approving the $3.5 trillion budget blueprint that includes President Biden’s critical domestic policy proposals. This marks significant progress in Biden’s “Build Back Better” agenda, which if passed into law is expected to benefit businesses across almost every sector.
Despite several headwinds, including the resurgence of the COVID-19 cases, the proposed large-scale investments and fiscal stimulus are expected to drive investor optimism. Consequently, growth stocks, which tend to perform well during an economic boom, are expected to gain handsomely.
Given the potentially robust government spending and positive investor sentiment, we think stocks with promising growth prospects, ON Semiconductor Corporation (ON), Dillard’s, Inc. (DDS), and Cohu, Inc. (COHU), should gain substantially.
ON Semiconductor Corporation (ON)
ON manufactures and sells semiconductor components for various electronic devices worldwide. The company operates in three segments: Power Solutions Group (PSG), Advanced Solutions Group (ASG), and Intelligent Sensing Group (ISG). ON is based in Phoenix, Ariz.
On August 25, ON agreed to acquire GT Advanced Technologies (GTAT) for $415 million in cash. The company expects to leverage GTAT’s cutting-edge technical capabilities and expertise in developing wafering-ready silicon carbide to better empower its customers in the high-growth end markets.
In July, ON announced its image sensing and LiDAR technologies power key functions in AutoX’s Gen5 self-driving platform. The new Gen5 autonomous vehicle technology enables the first fully driverless RoboTaxi. This aligns with the stringent and rapidly evolving automotive market needs and should allow the company to emerge as a leader in sensor technologies.
ON’s revenue increased at an 11.5% CAGR over the past five years, while its levered FCF increased at a 34.5% CAGR over the past three years.
For its fiscal second quarter, ended July 2, ON reported record revenue of $1.67 billion, indicating a 37.6% year-over-year increase. Its gross profit stood at $640.10 million, up 71% from the same period last year. Its operating income grew 554.8% from its year-ago value to $282.20 million. The company’s non-GAAP EPS increased 425% year-over-year to $0.63.
A $1.71 billion consensus revenue estimate for its fiscal third quarter (ending September 2021) indicates a 30% increase year-over-year. The Street expects the company’s EPS to rise 174.1% from the prior-year quarter to $0.74 in the current quarter. ON has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters.
ON gained 103.1% in price over the past year to close yesterday’s trading session at $44.03. The stock has gained 34.5% year-to-date.
ON has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ON has a B grade for Growth, Value, Momentum, and Sentiment. In addition, it is ranked #29 among the 99 stocks in the B-rated Semiconductor & Wireless Chip industry.
Click here to checkout our Semiconductor Industry Report for 2021
Click here to view additional ON ratings for Quality and Stability.
Dillard’s, Inc. (DDS)
DDS operates retail department stores in the Southeastern, Southwestern, and Midwestern areas of the United States. Its stores offer merchandise, including fashion apparel for women, men, and children, and accessories, cosmetics, home furnishings, and other consumer goods. DDS is headquartered in Little Rock, Ark.
On August 19, DDS declared a $0.20 per share cash dividend, representing a $0.05 increase from its $0.15 prior dividend. The dividend is payable on November 1, 2021.
The company has a notable growth history. DDS’ EBIT has improved at a 26.4% CAGR over the past three years, while its net income increased at a 21% CAGR over this period. In addition, its EPS has improved at a 31.9% CAGR over the past three years.
DDS’ net sales increased 70.9% year-over-year to $1.57 billion in its fiscal second quarter, ended July 31. Its net income improved 2,259.3% year-over-year to $185.70 million, and its EPS increased 2,481.1% year-over-year to $8.81.
Analysts expect DDS’s revenues to increase 39.9% year-over-year to $6.20 billion in the current year. A $21.31 consensus EPS estimate for the current year indicates an 866.5% rise from the last year. Furthermore, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Shares of DDS have gained 604.9% in price over the past year and 215.4% year-to-date.
It is no surprise that DDS has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. The stock also has an A grade for Growth, Value, and Quality. Among the 64 stocks in the A-rated Fashion & Luxury industry, DDS is ranked #5.
To see additional DDS ratings for Sentiment, Stability, and Momentum, click here.
Cohu, Inc. (COHU)
COHU in Poway, Calif., is in the semiconductor test and inspection equipment and printed circuit board (PCB) test equipment businesses in China, the United States, Taiwan, Malaysia, the Philippines, and internationally.
On June 24, COHU completed the sale of its Printed Circuit Board Test Group business to Mycronic AB (MYCR.ST). According to the agreement, COHU received cash proceeds of $125.4 million, subject to further potential post-closing adjustments. The company intends to use the net proceeds to repay approximately $100 million of its term loan facility.
The company has an impressive growth history, as evidenced by its EBITDA, which has improved at a 44% CAGR over the past three years, while its net income has increased at a 54.6% CAGR over this period. In addition, its EPS improved at a 34.1% CAGR over the past three years.
COHU’s net sales increased 69.9% year-over-year to $244.80 million in its fiscal second quarter, ended June 26. Its income from operations grew 21,788.8% from its year-ago value to $114.52 million, while its non-GAAP net income came in at $44.20 million, indicating a 522.5% increase year-over-year. The company’s EPS increased 423.5% year-over-year to $0.89.
The Street expects COHU’s revenues to rise 41.9% year-over-year to $902.79 million in the current year. A $3.04 consensus EPS estimate for the current year indicates a 155.5% improvement year-over-year. Also, COHU surpassed Street EPS estimates in each of the trailing four quarters.
Over the past year, COHU gained 88.2% in price to close yesterday’s trading session at $32.56. In addition, the stock gained 10% over the past five days.
The company has an overall B rating, translating to Buy in our proprietary rating system. In addition, COHU has an A grade for Growth, and B for Value and Momentum. It is ranked #42 in the Semiconductor & Wireless Chip industry.
Beyond what we’ve stated above, we have also rated COHU for Quality, Sentiment, and Stability. Click here to view all COHU ratings.
Click here to checkout our Semiconductor Industry Report for 2021
ON shares were trading at $45.73 per share on Friday afternoon, up $1.70 (+3.86%). Year-to-date, ON has gained 39.72%, versus a 21.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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