Daily Stock Pick: March 25th, 2022

Trading was muted this morning as the market looked for a direction to wrap up the week.  Heading into Friday’s session, the S&P 500 and the Nasdaq were up 1.3% and 2.1%, respectively, for the week, while the Dow was down 0.1%.  

If growth investors are learning anything over the past year, it’s that a downturn can happen fast.  Challenges like the ones we’ve seen recently – supply chain shortages, rising costs, Fed policy changes, and geopolitical turmoil – threaten to take the wind out of the market’s sails at any time, typically pulling the rug out from under volatile growth names.  

Striking up a position in a name that’s recently suffered a significant drop can be intimidating, but a high-risk factor also comes along with great reward potential.  However, not all names that have had their prices slashed are great bargains.  Discernment and due diligence are critical when selecting stocks from the high-risk, high-reward category.

Some stocks will recover more swiftly than others.  Today we’re highlighting a semi-conductor name firing on all cylinders with plenty to support their optimistic outlook for Q1.  The sell-off in the semiconductor space seems to have delivered a buying opportunity in this name for those with some risk tolerance.   

Specialist semiconductor design corporation Monolithic Power Systems (MPWR) serves a variety of sectors, including automotive, industrial, communications, and consumer goods. Various businesses are being impacted by global supply chain disruptions and chip scarcity. The realities of supply and demand, on the other hand, imply that the lesser number of chips will be more expensive, and firms like MPWR will be able to operate at total capacity while still doing so profitably.

MPWR crushed analysts’ expectations on EPS and Revenue for the past four quarters (making for a successful 2021). Also, MPWR currently pays a dividend yield of 0.7%. Their year-over-year numbers are all in the green, and the forecasts indicate quarterly and annual growth.  The company blew past analyst estimates for Q4, reporting $336.5 million in revenue and EPS of $2.12, where the consensus was expecting $321.9 million and $1.87 EPS.

Monolithic Power sees Q1 revenue in the ballpark of $354 million to $366 million, well above the consensus estimate of $322 million, suggesting the analyst community may be underestimating the stock.  We’ll have to wait until next season to find out exactly how well the company is maintaining amid current challenges.  

MPWR has a consensus 12-month price target of $568.00, implying an increase of 15% from where the stock closed Thursday.  The consensus gives MPWR a solid buy rating.  Of 13 analysts offering recommendations, 11 rate the stock a Buy and 2 say to Hold.  There are currently no Sell ratings for the stock. 

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