Not every stock can claim that they’ve beaten the Dow four-to-one in the past three months. But NXP Semiconductors (NXPI), which ranks in the top 20 semiconductor companies by sales, can. Since I added this stock my Blue Chip Growth advisory newsletter in April the stock has gained a respectable 16% while the Dow has climbed just a little over 4%.
And with this company’s second-quarter earnings report scheduled for after close on July 23, I expect that lead to widen even further. But before I get ahead of myself, let’s dig deeper into what NXP Semiconductors does and why I’m so bullish about its business model.
Sixty years ago (which for the tech sector is practically eons ago), Philips Board was founded in the Netherlands. Over the years, what started as a modest semiconductor operation has grown into a multi-billion dollar business with operations in 25 countries. Along the way Philips also changed its name to NXP, standing for "next experience." And the company has lived up to its new name, providing next generation chips used in everything from cell phones to cars to ID cards to wireless infrastructure. Where NXP sets itself apart is its focus on energy efficiency, authentication technology and data security.
Over the years it has built up a reputation that has attracted high profile OEM (original equipment manufacturer) customers like Apple, Bosch, Gemalto, Huawei, Nokia and Samsung. About 40% of NXP’s business is in China while approximately 7% comes from the United States. It has the distinction of being the first “true” automotive semiconductor maker in China, and it has historically been much more successful in entering this market than many other chip makers and software companies. The company’s revenue base is well diversified, which is a definite plus.
Another cash cow for NXP Semiconductors is in EMV (Europay-MasterCard-Visa) credit cards, which are more secure than traditional magnetic stripe cards. NXP Semiconductors makes smart chips that are embedded in EMV cards and create a unique signature for each transaction. Banks across Europe have embraced this technology and just recently JPMorgan (JPM) started sending EMV credit cards to its customers. The analyst community expects other issuers to follow suit, which would be very good for the company’s bottom line over the next few years.
This would be building on an already very strong base for earnings growth. For the upcoming earnings report, the analyst community is looking for $1.05 EPS on $1.33 billion in revenue. Compared with Q2 2013 this works out to 11.8% annual sales growth and 47.9% earnings growth. But the company’s history of blowing past analyst expectations (and the fact that the consensus EPS estimate has risen $0.03 in the past 90 days) leads me to believe that NXP Semiconductors will do even better.
So before the closing bell chimes on July 23, I recommend you pick up a few shares of this A-rated stock.
P.S. If you’d like more information on NXPI, including my current price limit for the stock, you can access it through a risk-free trial of Blue Chip Growth.