This semiconductor stock could be the best value for money

Big oil companies like it Hess NYSE: YES and the classics like Chevron New York Stock Exchange: CVX and even Exxon Mobile NYSE:XOM they are reaping big profits lately. This shows how enthusiastic the market has become about other areas of the economy, such as semiconductor and technology stocks, which is where all the growth has been concentrated for the future stock price.

Now that the new earnings season has begun, investors are even more focused on the biggest names in the industry, names like NVIDIA NASDAQ:NVDA AND Intel NASDAQ: INTC. However, smaller names typically end up surprising investors with unexpected earnings numbers, causing their stock prices to rise at a wild rate of percentage points.

This is why it can be useful to look at the entire value chain of the semiconductor industry. Names like All of them NASDAQ: ON really starting to shine in how analysts perceive its upside potential, which happens to be trading at a significant discount to the rest of its peer group. You should read it if your wallet is tired of missing out on past gains in the semiconductor industry.

All the good stuff

As the automotive industry begins to adopt more and more technology into its vehicles, there is a growing need for chips to adapt to the growing demands of the space. ON offers a series of solutions to make this happen. But don’t take the story at face value; an experienced investor like you needs to see the facts.

This stock had outperformed the broader stock VanEck Semiconductor ETF NASDAQ: SMH up to 40.0% until 2021, after which the automotive industry began to experience increasing inventory shortages and order delays, causing a sudden decline in order backlog and ON demand.

Over the past twelve months, the sector has felt some recovery and moved on to deliver a stellar performance of 50.8%, leaving ON behind with a large underperformance gap of 64.5%. Now that the supply chain has normalized in the automotive market, demand appears to be growing again after inventory levels normalize.

You can see this in action by analyzing the latest reports on the ISM manufacturing PMI index, in which metals industry executives point to a month of January that was “up” as auto orders flowed in after inventories were reduced. As demand for vehicles returns to the U.S. economy, Onsemi will likely see a return in its stock price.

Aside from one of the most closely watched reports in the economy indicating a breakout from Onsemi’s own customers, Wall Street’s biggest names are pushing their own tailwinds, pushing the thesis further. Analysts at The Goldman Sachs Group NYSE:GS expressed their views on the manufacturing sector in their report on the macroeconomic outlook for 2024.

By pointing to a surge in the manufacturing sector, Goldman indirectly includes automotive production, which in turn represents potential upside for Onsemi’s future earnings, but more on that later.

The record is set

Knowing what you know now, it shouldn’t be that surprising to see analysts set a $98.1 price target on the stock, predicting an upside of 38.5% from today’s prices. Despite the bullishness coming from analysts, markets have yet to realize the potential of the name, as the price trades at just 64.0% of its 52-week highs.

Compared to other names in the space, companies like it Microchip technology NASDAQ:MCHP AND Analog devices NASDAQ:ADIwhich are trading at much more expensive levels, onsemi is starting to look like a value investor’s dream.

From 2019 to now, the company has increased its free cash flow (operating cash flow minus capital expenditures) tenfold, which should have sent the stock to all-time highs. Building on the financial momentum comes consistent double-digit revenue growth, as seen in the latest quarterly financial results, a trend that shows no sign of slowing.

For better or worse, these shares can be bought at a discount today, and the tape has been set to give ON stock a clear path forward. In any case, the auto industry may be preparing for potential FED rate cuts, as it understands the positive effect this will have on auto sales and, consequently, demand for semiconductors.

Analog and Microchip are trading at 95.0% and 89.0% of their 52-week high prices, respectively, meaning that any potential growth these companies may see in the coming months is likely priced into the stock today. This potential deal is for those who are patient enough to see the entire wave develop, and patience favors the savvy investor.

Before you consider Goldman Sachs Group, you’ll want to hear this.

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