Intel Corporation (INTC), ARM Holdings plc (ADR) (ARMH), and Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (TSM): Three Leading Semiconductor Stocks to Watch

Semiconductors, chips, and processors. In this industry you have got to be really big in order to actually succeed. With the decline of the PC and the rise of smartphones and tablets, the scenario is somehow reorganizing. We will look into some of the main companies in the sector —

Intel Corporation (NASDAQ:INTC), ARM Holdings plc (ADR) (NASDAQ:ARMH), and Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) — in order to analyze how they will perform in the future given the changing circumstances.

A big cap leader to keep an eye on

In a sector which has been performing flatly, Intel Corporation (NASDAQ:INTC) has been underperforming its peers since April 2012. Although many believe that recovery is not bound to occur, others still trust the company to be indispensable for the sector’s production.

One way or another, the stock should be considered as its dividend yield of 3.87% is considerably above the 2.2% industry average and higher than the yields offered by 160 — or 98% — of the 164 companies in the semiconductor segment. Something similar can be said about the 10.3x P/E ratio, way below the 22.35 industry median. All these elements combined would provide great value for investment.

Another positive point for Intel Corporation (NASDAQ:INTC) is its expanding operating margin, currently among the highest in the industry at 27.4% while the sector´s median is at 2.15%. Comparable is the situation of other metrics such as net margin, return on equity, return on asset etc., all of which are significantly above the industry´s median values.

Some of the company´s characteristics, like its vertical integration (unique in the sector), its best-in-class fabrication process and results, and its impressive R&D spending, make Intel Corporation (NASDAQ:INTC) a stock worth noting.

Despite the encouraging signs, some investors are worried about the decay of the PC market and about Intel Corporation (NASDAQ:INTC)´s capability of penetrating and dominating the smartphone market. Also Zacks´ #3 Hold rank and Barrons’ Hold consensus place the company below many other investment options with greater expected growth.

ARM Holdings plc (ADR) (NASDAQ:ARMH) is an emerging leader

As mentioned previously, some companies in the sector offer better growth prospects and higher expected returns than Intel Corporation (NASDAQ:INTC). This is ARM Holdings plc (ADR) (NASDAQ:ARMH),’s case: with a projected EPS increase of 29% in 2013, it ranks as a #2-Buy for Zacks’ analysts, while The Wall Street Journal’s consensus is overweight on the stock.

Nevertheless, the market seems to have already acknowledged this as the stock trades at $46.33, its highest price in 13 years and 85.6 times its EPS, 24x P/S, and 11.3x P/B, higher values than 98% of its 164 peers.

Despite the valuation, which certainly reflects a significant amount of optimism regarding future profits, ARM Holdings plc (ADR) (NASDAQ:ARMH), is an attractive investment because of its promising outlook. The company reported a 29% increase in revenue in the first quarter, and another 21% in revenue growth is expected in the second quarter.