As we stand on the threshold of a promising year for semiconductor stocks, it is crucial to sift through the flock to identify the underperformers. Just as a farmer must cull weak or sickly animals from his herd to ensure its vitality, investors must trim their portfolio of F-rated semiconductor stocks to maintain financial health in the new year. The market, akin to a capricious lover, may swoon at times, but it is quick to leave the dance floor if a stock cannot keep pace with the competition or is burdened with insurmountable debt.
January is a notorious month, a time when market exuberance wanes, and stocks often shed their holiday gains. Outperforming the market in January is like hitting a sweet spot, setting the tempo for the rest of the year. On the contrary, holding onto feeble stocks can cast a looming shadow over the year, leaving investors playing catch-up for the subsequent quarters.
There is wisdom in taking evasive action to avoid the pitfalls that await those who hold onto F-rated semiconductor stocks. The industry promises to play a pivotal role this year, and for investors, a sell list should include these underperformers.
The Troubles of MaxLinear (MXL)
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Maxlinear (NASDAQ:MXL) caters to the communications industry, crafting semiconductors utilized in cable and satellite television reception, broadband data access, wireless infrastructure, and networking. However, the company had a forgettable year – backing out of a $4 billion acquisition of Silicon Motion (NASDAQ:SIMO) and facing a considerable revenue decline. In the first, second, and third quarters, revenues plummeted in comparison to the previous year. The third quarter witnessed a distressing 53% revenue drop, accompanied by a loss of 49 cents per share, a stark contrast to the 5-cent loss per share in the third quarter of 2022. The company’s projected fourth-quarter revenue provides little respite, expected to range between $115 million and $135 million, a far cry from the $285.7 million revenue in Q4 a year ago. Maxlinear’s stock has descended by 35% over the last year, securing an “F” rating in the Portfolio Grader, epitomizing its downward trajectory.
The Troubles of AXT (AXTI)
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AXT (NASDAQ:AXTI) produces the essential materials for semiconductors – compound semiconductor wafer substrates. These substrates serve as the foundation for fabricating photonics and wireless devices across consumer electronics, automotive, IoT devices, telecom infrastructure, and data centers. Despite the critical nature of its products, the California-based company is witnessing a rapid decline in its prospects, with both top-line revenue and stock price plummeting by 47% over the past year. The third quarter results substantiate Wall Street’s bearish stance with a reduction in revenue from $35.2 million and a profit of $4.6 million to a mere $17.4 million and a loss of $6.7 million, marking a lamentable downturn. AXT’s revival is imperative to reinstate investor confidence, currently mired by an “F” rating in the Portfolio Grader.
The Troubles of Meta Materials (MMAT)
The saga continues with Meta Materials (MMAT). The company is at the forefront of developing nanostructured metamaterials, a trailblazing endeavor aimed at revolutionizing multiple industries. Yet, despite its groundbreaking aspirations, Meta Materials is mired in a maelstrom of financial turmoil, with its stock floundering under the weight of an “F” grade from the Portfolio Grader. The continued descent was accentuated in recent quarters, with revenue dwindling from $120.6 million to $29.3 million – indicative of its dire predicament. As the new year unfolds, Meta Materials finds itself grappling to unearth a financial strategy that can reverse its deteriorating fortunes and resurrect investor confidence.
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It’s not looking good for Meta Materials (NASDAQ:MMAT) stock. With the stock price at 6 cents per share, the stock is at risk of being delisted from the Nasdaq exchange.
The Plight of Meta Materials (NASDAQ:MMAT)
Nasdaq informed Meta in November it was out of compliance because the stock closed at less than a dime for 10 consecutive days. Meta is now scheduled to have a hearing on March 21 so it can appeal the decision.
In addition, Meta Materials is out of compliance with another Nasdaq rule that says that companies can be delisted if shares close below $1 for 30 consecutive days. Meta was given until Sept. 18 to resolve that issue, but the point is moot if it loses the March hearing.
Meta Materials sought shareholder approval for a reverse stock split to bring the price into compliance, but shareholders rejected the notion in December.
All these leaves the semiconductor company in a precarious position. MMAT stock is down 93% in the last year and gets an “F” rating in the Portfolio Grader.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) makes power optimizers and inverters to help solar panels operate more efficiently.
Solar power is a top priority of the Biden administration as it seeks to lower greenhouse gas emissions and has been offering incentives to promote alternative energy sources.
But there are industry headwinds at play as well. Oppressive interest rates and high inflation made 2023 an unappealing time for customers to invest in solar panels.
In addition, some states are looking to roll back the compensation that solar power customers get from utility companies through net metering rules. That will make solar power less appealing, even as interest rates look to fall and inflation is back under control.
Third-quarter earnings didn’t make anyone feel better. Revenue was $725.3 million, less than analysts’ expectations of $758.38 million. And the company posted a loss of 55 cents per share while the Street was expecting a profit of 89 cents per share.
SEDG stock is down 78% in the last year and gets an “F” rating in the Portfolio Grader.
The Trials of Emeren Group (SOL)
Emeren Group (NYSE:SOL) is a solar project developer and operator.
The company operates in Asia, Europe and the U.S., targeting locations that have government-friendly policies for solar power grids.
Projects in the U.S. are in Minnesota, North Carolina, Pennsylvania and California, among others. It also focuses on developing utility-scale green energy and solar projects in California, Illinois, New York and Pennsylvania.
It is also attempting to spread internationally, with recent purchases of solar portfolios in Italy, Spain, and China.
However, revenues and profits are down significantly as a strong U.S. dollar and permitting challenges accounted for more than $9 million in charges in the third quarter.
For the quarter, revenue of $13.9 million was steep from a year ago when it recorded $23.9 million in revenue. The company posted a net loss of $9.4 million, much worse than the loss of $1.1 million a year ago.
SOL stock is down 49% in the last year and gets an “F” rating in the Portfolio Grader.
The Turmoil of SunPower (SPWR)
SunPower (SPWR) is a solar company that focuses on distributed generation solar energy systems. The company provides reliable and innovative solar solutions for residential, commercial, and power plant customers.
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SunPower (SPWR)
The solar energy player SunPower (NASDAQ:SPWR) finds itself in a tailspin as it struggles amidst financial woes. The company, known for designing, manufacturing, and selling solar electric systems for residential and commercial use, is facing significant challenges.
The trouble began when SunPower announced the need to restate its financial statements for 2022 and the first two quarters of 2023. This came as a result of overvaluing some assets by as much as $20 million, leading to a significant understatement of the cost of revenue. In addition, the company failed to file Q3 results on time, breaching a key contractual term that could allow lenders to recall loans amounting to $65.3 million. As a consequence, SPWR stock plummeted by 30% in a single day. The company has openly admitted that it may not be able to continue if lenders decide to call in the notes. SWPR stock is down 77% overall in the last year, earning an “F” rating in the Portfolio Grader.
Ambarella (AMBA)
California-based semiconductor design company Ambarella (NASDAQ:AMBA) is facing its own set of challenges as a result of the industry’s pullback in demand for high-quality video products in 2023. The company specializes in video processing chips for security cameras, automobile cameras, and drones, featuring human vision and AI applications, including video security, advanced driver assistance systems, driver/cabin monitoring, and autonomous driving.
In the third quarter, Ambarella saw a drastic 39% drop in earnings from a year ago, amounting to just $50.6 million. During the first nine months of the year, the company’s revenue was $174.9 million, a steep decline from $254.3 million in the first nine months of 2022. Looking ahead, the company expects fourth-quarter earnings to remain subdued at $50 million to $53 million. Facing fierce competition from better-known and A-rated competitors, AMBA stock receives an “F” rating in the Portfolio Grader.