NXP Semiconductors (Nasdaq: NXPI) Stock Up 148% with Room to Run

    Text size

NXP Semiconductors NV (Nasdaq: NXPI) stock has been on the radar of Money Morningreaders for quite some time. Executive Editor Bill Patalon first wrote about the stock in May 2012, and Money Morning's Defense and Tech Specialist Michael Robinson alerted his readers to the stock's potential in June 2013.

NXP Semiconductors
Sep 22 11:57 AM
loading chart...
Price: 71.59 | Ch: -0.40 (-0.6%)

Since May 2012, NXPI stock has gained an impressive 148%. That compares to a gain of 30% for the Dow Jones Industrial Average and 44% for the S&P 500.

And while the stock has already brought Money Morning readers triple-digit gains, it still has excellent profit potential.

NXP Semiconductors designs and manufactures High Performance Mixed Signal semiconductor solutions, which are used in a wide range of industries including: automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer, and computing applications.

NXPI stockAnd while NXP's products are widely used, the main reason Money Morning experts have been high on NXPI stock is one industry in particular.

In fact, it's one of the most exciting sectors on the market today - wearable technology.

NXPI Will Cash In on Wearable Tech

In February, the research firm Canalys claimed wearable tech will become a "key consumer technology" by the end of 2014. At the same time, the firm also predicted that the smart wristband segment alone will grow from 8 million in 2014 to 23 million in 2015. That number is expected to reach 45 million in 2017.

Another study from Juniper Researchin late 2013 reported that retail revenue from the wearable technology market will grow from $1.4 billion in 2013 to $19 billion in 2018.

That type of growth is exactly why Michael Robinson has been watching this sector so closely.

"The tech forecasters at IDCsay the wearables market will grow at a compounded annual rate of 78% for the next several years," Robinson said. "That means it will double roughly every 11 months."

One look at the company's investor presentation and you can see that NXP is targeting this growing market.

"Right on page two the company lays out four major growth areas it's targeting: the Connected Car, Cybersecurity, Portable & Wearable Devices, and the Internet of Things," Robinson said.

But just because a company is "targeting" an industry doesn't alone make the stock a buy - it also has to have strong financials. Fortunately for NXP shareholders, NXPI stock's huge gains haven't been just a product of hype...

More Reasons Why NXPI Stock Is a Buy Now

According to Yahoo! Finance, NXPI currently has a forward P/E ratio of 13.34, which Robinson says is favorable to the overall semiconductor industry's forward P/E of 16.4.

"NXPI stock has PEG Ratio of just 0.45. That's another positive sign." Robinson said. "The PEG ratio measures the firm's P/E against its project growth rates. A PEG ratio of 1.0 is considered 'fair value.' Less than that is viewed as a discount ... a bargain."

But those aren't the only numbers that make NXPI a good stock in Robinson's eyes.

"A good guideline for an efficiently run firm is an operating margin of at least 10%," Robinson said. "At 15%, we see that NXP is well above our minimum threshold."

Robinson also prefers a minimal threshold of 10% for return on equity (ROE) for stocks he recommends, and NXPI is well above that figure with an ROE over 42%.

NXPI stock has beaten earnings predictions for four consecutive quarters, and analysts are currently projecting a 48% jump in EPS, year over year, this quarter. Revenue for the quarter is expected to jump nearly 12% this quarter to $1.33 billion.

According to a recent poll by Thomson/First Call, six analysts rate NXPI stock as a "Strong Buy", 11 as a "Buy," two as a "Hold," and just one as an "Underperform."

After a 20% gain in the last three months, NXPI stock currently trades just below $67 per share. But because of its strong financials and the dynamic industry it operates in, NXP Semiconductors still has great potential for investors.

URGENT: NXP is not the only must-have wearable tech company on Michael Robinson's radar. In fact, he's closely monitoring a tiny company that's about to make a jarring impact on the wearable sector - and society as a whole - with its micro 'LifeChips' that can be swallowed and used to track a person's vital signs. Evidence suggests this new breakthrough technology will be in every iWatch (and help you live an extra 27 years.) First wave hits shelves this month. Go here.

Do you plan on buying NXPI stock or investing in any other wearable tech firms? Join the conversation on Twitter @moneymorning using #WearableTech.