We recently compiled a list of the 10 High-Flying Stocks to Buy Now. In this article, we are going to take a look at where Semtech Corporation (SMTC) stands against the other high-flying stocks.
The equity markets are priced for a soft landing. This means that even the fear of a mild recession might trigger a significant equity-market correction. The broader economic data aids the soft-landing thesis, but a slowdown consistent with soft landing might still lead to a downturn, explains Chief Investment Strategist of Russell Investments. As of now, a soft landing appears to be a more likely outcome. Inflation continues to decline, growth in wages has been moderating, and labor-market pressures are cooling. Importantly, the US Fed started easing before the clear signs of economic stress emerged.
Factors Driving Volatility- Caution for Investors
As per Allianz Global Investors, the interest rate cut by the US Fed in September made a watershed moment for the broader markets. While the opportunities for investors might reverse overnight, the company believes that it marks the beginning of the end of a period in which tech stocks and cash (or cash-like instruments) were the go-to instruments for market players.
Overall, the firm remains optimistic about the months ahead, while admitting that this period is a period of below-potential growth in which downside risks are expected to naturally increase. Geopolitics might act as a continuing source of volatility as and when events unfold in the Middle East and Ukraine. This can be a threat to another potential surge in energy prices. The risk of the US election looms large, with the policies of the winner expected to leave a lasting market impact. There are risks in Europe, where France and Germany are impacted by domestic issues while growth and financial stability remain vulnerable. The investment management firm believes that there is a danger of broader instability in the eurozone, with implications for bond markets.
The equity markets anticipate an aggregate of 135 bps of global cuts over the next year as compared to only 75 bps at the end of June. The firm expects that a significant chunk is expected in the US, more than what was expected in the soft-landing scenario. This might lead to a repricing of expectations, resulting in volatility.
Amidst such uncertainties, market investors are required to be focused on quality and growth companies. With global economic growth decelerating, this should not be treated as a bearish signal for the broader equities. As inflation and rates come down, the path is expected to be positive for quality and growth, with the investment management firm expecting such styles to outperform over the coming months. Even though the performance of the global economy remains highly dependent on whether the balance between rates, growth, and prices is achieved, some signs point towards a favorable outcome.
Since the final part of the year might see some volatility, looking selectively to some defensive options will ensure that portfolios remain as balanced as possible.
What Lies Ahead?
The technology stocks led the equity market rally for much of 2024, with investors seeing the AI euphoria in full effect. However, investors continue to question whether this enthusiasm has been exhausted or if there is any heat left. BlackRock believes that the momentum in technology is expected to continue and that the summer setback was just temporary. Having said that, the asset manager sees a greater differentiation throughout technology stocks.
The firm believes that earnings growth is expected to remain healthy for the technology sector broadly, as a result of the build-out of AI and a commitment to cost prudence from tech firms.
Morningstar believes that the rotation into small-cap and value stocks should continue to see a decent rally as each remains undervalued on an absolute basis and relative to the market valuation.
Our methodology
To list 10 High-Flying Stocks to Buy Now, we conducted an extensive online search and sifted through online rankings and different screeners. After extracting the list of 20-30 stocks, we filtered out the stocks having the highest upside potential and which have performed well on a YTD basis. Finally, we ranked the stocks according to their upside potential, as of October 1.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician looking at a circuit board of analog semiconductor products.
Semtech Corporation (NASDAQ:SMTC)
% Increase on a YTD Basis: ~94%
Expected Upside Potential: 24.76%
Number of Hedge Fund Holdings: 37
Semtech Corporation (NASDAQ:SMTC) is engaged in designing, developing, manufacturing, and marketing analog and mixed-signal semiconductors and advanced algorithms.
Wall Street analysts are particularly optimistic about the infrastructure and high-end consumer segments. While Semtech Corporation (NASDAQ:SMTC)’s LoRa-enabled solutions and IoT systems business segments saw healthy sequential growth, it remains confident about the potential of its Low Power Optical (LPO) technology in the optical transceiver market.
Along with healthy demand projections, Semtech Corporation (NASDAQ:SMTC) anticipates a shipment ramp-up in Q4 FY 2025 and throughout FY 2026.
Market experts opine that growth should continue in infrastructure and high-end consumer markets. Its PerSe proximity sensing products saw significant traction with a key Korean smartphone manufacturer. Also, Semtech Corporation (NASDAQ:SMTC)’s infrastructure segment continues to experience healthy demand, mainly in hyperscale data centers. The company has maintained its focus on expanding industry reach and customer engagement.
Strategic initiatives, like the expansion of its AirLink Management Service in Canada and the development of its LPO technology, exhibit Semtech Corporation (NASDAQ:SMTC)’s commitment to innovation and market expansion. For Q3 2025, the company expects net sales of $233.0 million (+/- $5.0 million) and a gross margin of 52% (+/- 50 bps).
Susquehanna upped the price objective on shares of Semtech Corporation (NASDAQ:SMTC) from $45.00 to $55.00, giving a “Positive” rating on 6th June. As per Insider Monkey’s Q2 2024 database of 912 hedge funds, Semtech Corporation (NASDAQ:SMTC) was in the portfolios of 37 hedge funds.
Overall SMTC ranks 10th on our list of the high-flying stocks to buy now. While we acknowledge the potential of SMTC as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SMTC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.