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2 Innovative Semiconductor Stocks Set to Crush the Market in 2022

The benchmark S&P 500 market index has risen roughly 19% in 2021 (so far). But we're a few short months away from 2022, and some challenges on the horizon could garner uncertainty in the new year.

Higher interest rates and less government stimulus are in the forecasts of many stock market pundits, and the explosive economic growth triggered by a reopening society trying to get past a (still present) pandemic will also likely have run its course in 2022.

Image source: Getty Images.

While that combination of factors could dampen market performance, it doesn't mean all returns will be negative. Investors might have to be more selective about the stocks they own, though, to generate comparable performance.

Two semiconductor stocks are currently benefitting from industrywide supply shortages, and their products and services are likely to still be in high demand next year (and beyond). That could mean market-crushing returns for investors. Let's find out a bit more about these two stocks forecast to do well in 2022.

1. The case for Cohu

If you've tried to purchase a new gaming console, advanced computer parts, or even a new car this year, you've likely had a hard time getting what you want. The culprit is a worldwide shortage of semiconductors -- the chips that power all of our electronic devices. This shortage is set to continue well into the new year.

The automotive sector has arguably been the hardest hit because vehicles have become more intelligent, feature-heavy, and electrified, making them hungrier for advanced processing power. Many car manufacturers have been forced to trim production this year because they can't get enough supply of the necessary chips.

Cohu (NASDAQ: COHU) is a semiconductor service company that provides testing and handling equipment for some of the largest producers in the world, helping them to expand capacity to alleviate these pressures.

In fact, in the second quarter this year, Cohu said its Neon inspection systems were key to increased customer acquisition. The Neon line handles and inspects semiconductors as small as 0.2 millimeters by 0.4 millimeters at high speed without compromising defect detection -- exactly the kind of chips found in automotive applications.

This year it has ramped up operations in its automotive segment, and it's set to deliver its first annual profit since 2017 on the back of soaring revenue growth.

Metric

2019

2020

2021 (Estimate)

Revenue

$583 million

$636 million

$902 million

Earnings (loss) per share

($1.69)

($0.33)

$3.05

Data sources: Cohu, Yahoo! Finance.

Cohu grew revenue by just 9% between 2019 and 2020, but it's set to more than quadruple that growth rate this year to 41%.

Yet Cohu's stock trades at a significant discount to a basket of its peers represented by the iShares Semiconductor ETF. The exchange-traded fund trades at a price-to-earnings multiple of 31 times, compared to Cohu's 10 times (based on estimated 2021 earnings).

As the semiconductor shortage is widely expected to persist in the new year, so is Cohu's opportunity. That might be why one Wall Street firm thinks the stock could rise by more than 109%.

Image source: Getty Images.

2. The case for Axcelis Technologies

Like Cohu, Axcelis Technologies (NASDAQ: ACLS) serves some of the largest semiconductor producers in the world, so it's also set up for a really big year in 2022. But its role is far more technical, as it designs and builds ion implantation equipment that is used in the actual fabrication process.

The company has also shifted focus to the automotive segment, which falls under its "Power Device" line. In fact, in September Axcelis shipped an entire family of its Purion Power Series implanters to various semiconductor manufacturers across Asia and Europe. The company said it's a sign of the growing electrification of the automotive industry -- and since that trend is only getting stronger, Axcelis is extremely well-positioned for future growth.

In a sign of broader strength, the company generated $100 million in systems revenue for the first time since 2004 in the second quarter of this year, and it is seeing the performance flow through to the bottom line.

Metric

2019

2020

2021 (Estimate)

Revenue

$342 million

$474 million

$625 million

Earnings per share

$0.50

$1.46

$2.46

Data sources: Axelis Technologies, Yahoo! Finance.

Axcelis is set to grow earnings per share by almost 400% since 2019 thanks to expanding gross margin. Since the company's products are in such high demand, it's producing more of them, which helps build scale as fixed costs become a smaller portion of overall costs. Additionally, customers are willing to pay higher prices; both of these factors lead to higher profits.

Right now, Wall Street has a consensus buy rating on Axcelis' stock and there isn't a single major analyst recommending a sell. It's no surprise, given so many factors are working in this company's favor, and it could be one of those picks that helps your portfolio crush the market in 2022.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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