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The global semiconductor shortage that’s been a pain in many people’s necks throughout this year is going to last 2022. So as the saying goes: If you can’t beat them, join ’em.

A lack of chips has led to shortages of products ranging from electronics and computers to cars and higher prices. However, on balance, the chip shortage hasn’t hurt the semiconductor sector. The

iShares Semiconductor exchange-traded fund
(SOXX) is up about 18% year to date, in line with comparable gains of the

S&P 500.

The sector has kept up even as shares of the largest companies in the ETF–


Intel

(INTC) and


Broadcom

(AVGO)–have underperformed. That pair is up about 9% and 14% year to date, respectively, lagging behind the industry and broader market.

The shortage isn’t going away soon. Only Monday, auto parts supplier


Aptiv

(APTV) cut sales and earnings guidance for 2021. About 3 million cars that were expected to be built and sold aren’t going to roll off assembly lines because of a lack of chips, the company said.

Investors can make the persisting shortage work for their portfolios by looking at Wall Street’s favorite chip-sector stocks. There are 14 stocks in the chip sector with above-average Buy-rating ratios and are trading with at least 30% upside compared with their average analyst target price.

The 14 stocks, listed by descending order of upside, are: specialty gas services provider


Ultra Clean

(ticker: UCTT), wafer equipment makers


FormFactor

(FORM), processing materials company


CMC Materials

(CCMP), chip designer


Cirrus Logic

(CRUS), equipment maker


MKS Instruments

(MKSI), light-emitting diode technology company


Universal Display

(OLED), semi-test company


ASE Technology

(ASX), memory maker


Micron Technology

(MU), mobile chip giant


Qualcomm

(QCOM), semi test and robot equipment maker


Teradyne

(TER), chip fabrication giant


Taiwan Semiconductor Manufacturing

(TSM), mobile chip makers


Skyworks Solutions

(SWKS),


Qorvo

(QRVO), and equipment maker


Lam Research

(LRCX).

Ultra Clean / UCTT 100.00% $43.07 $71.33 66%
FormFactor / FORM 77.80 36.20 48.89 35
CMC Materials / CCMP 57.10 121.55 159.29 31
Cirrus Logic / CRUS 84.60 80.52 105.83 31
MKS Instruments / MKSI 80.00 143.84 213.00 48
Universal Display / OLED 75.00 171.89 251.00 46
ASE Technology / ASX 66.70 6.80 9.70 43
Micron / MU 81.80 69.96 98.32 41
Qualcomm / QCOM 74.30 125.89 175.75 40
Teradyne / TER 68.80 109.28 145.73 33
Taiwan Semi / TSM 70.00 111.22 146.95 32
Skyworks / SWKS 62.10 161.39 213.68 32
Qorvo / QRVO 71.40 165.81 219.48 32
Lam Research / LRCX 70.40 556.82 725.15 30

Source: Bloomberg

The average Buy-rating ratio for the 14 stocks is about 75%. The average upside is almost 40%. Wall Street is more bullish today than it was a year ago. Before the chip shortage was daily news, the average upside for the group of 14 was about 12%.

Accelerating earnings growth is one reason for optimism. For the group, earnings are expected to grow about 18% a year on average, up from about 12% average annual growth posted over the past three years.

While these stocks in the chip sector look like they still have to run despite supply chain woes, a stock screen is just a starting point for more research.

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