Deutsche Bank's 6 Favorite Semiconductor Stocks

In a report published Tuesday, Deutsche Bank analysts maintained their Neutral-Weight recommendation for the Semiconductor segment, while mentioning their earnings preview for the first quarter and noting the top picks in their coverage universe. The analysts expect the semiconductor stocks to report marginally weak results for 1Q15 and announce slightly cautious guidance for 2Q. Demand in the industry is likely to have been impacted by a weak macro environment and strength in the US dollar. In the report Deutsche Bank noted, "The SOX is now entering a historically challenging part of the year (2Q/3Q) where it has usually underperformed the broader indices. When combined with above-average valuations, these fundamentals concerns lead us to reiterate our Neutral-weight sector recommendation." The analysts recommend investors to "focus away" from "already expensive high quality broad-based names. These require significant macro improvements to deliver any estimate upside. They recommend a focus on "names with co-specific rev growth drivers or potential to generate EPS leverage with minimal rev upside (deleveraging, restructuring etc.)." The analysts also prefer stocks that have sustainable cash-return policies. Deutsche Bank's top picks among the Semiconductor stocks, all of which are Buy-rated, are: In Mega Cap 1.

In Large Cap 2.

3.

In Mid Cap 4.

In Small Cap 5.

6.

The analysts expect "generally in-line" 1Q15 reports from semiconductor companies, with positive seasonality offsetting an adverse currency impact during the end of the quarter. "That said, we believe incremental downside is more likely than upside," the analysts added. The 2Q guidance would be conservative, given the weak macro backdrop. "As such, we believe the Street's above-seasonal 2Q revenue growth estimate (+4% vs. seasonality of +2% for the top 50 semi companies) may prove optimistic," the report added.