Sometimes deciding between two particular stocks is a no-brainer. When one stock is poised for years of growth and another is dying on the vine, the decision is an easy one. However, in the case of which is the better buy, Himax Technologies (NASDAQ: HIMX) vs Cypress Semiconductor (NASDAQ: CY), the answer is far from cut-and-dried.
Himax and its lineup of display drivers and wafer-level optics (WLO) have been on a fabulous roll recently, and all signs point to its positive results gaining momentum this year. Cypress and its wearables, automotive infotainment touchscreens, memory, and fingerprint security solutions are also humming along.
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So, which is the better buy? Though I'm bullish on both, one has a slight edge.
The case for Himax
The end of 2017 and the first half of 2017 were undeniably rough. This time last year, CEO Jordan Wu warned investors that Himax had dropped the ball. The problems were inadequate capacity to meet WLO demand and delays in product development. The issues caused some investors to become even more bearish toward Himax. One naysayer went as far as to suggest Wu was guilty of fraudulent behavior, which was a head-scratcher and strongly denied by the company.
Wu didn't couch Himax's troubles in CEO-speak as so many do: In fact, he did just the opposite.
Himax demonstrated last quarter the return to growth Wu had promised has come to fruition: And 2018 will be even better. Virtually every one of Himax's business segments improved sequentially last quarter, led by a jaw-dropping 86% jump in non-driver business revenue to $55 million. Display drivers still account for the majority of revenue, but non-drivers now equate to a record 28% of total sales.
The icing on the cake was news that Himax, in collaboration with Qualcomm, is close to delivering its new 3D sensing solution early this year. The SLiM 3D offering is billed as "the "only true 3D sensing total solution" available today for Android OS smartphones. The new product will be ready for mass production this quarter.
Other than carrying $147.2 million in short-term notes, which Himax has restricted cash set aside as collateral, it's debt-free. With no debt and cash flow soaring more than five times to $16.9 million last quarter, Himax's 2.33% dividend yield is safe.
The case for Cypress
Not only is Cypress positioned to benefit from burgeoning IoT, fingerprint security, and memory solution markets, it's already leading the charge. Last quarter's $604.6 million in total revenue was a 14% increase compared to a year ago, and thanks to the company keeping a handle on overhead, per-share earnings soared 29% to $0.27, excluding one-time items.
The balance of Cypress's three primary divisions, multipoint control units (MCU) -- used in programmable and IoT wireless solutions -- memory, and connectivity, also bodes well for the future. MCU accounted for 34% of Cypress' sales in the third quarter, memory 38%, and connectivity 28%. That product diversification acts as a buffer should a particular offering undergo pricing pressure or lower-than-expected demand in a particular quarter.
Cypress' efficiency was also evident in last quarter's operating margin of 19%, well above 2016's 13.4%. Based on guidance for the current quarter, Cypress fully expects to keep its positive momentum going. At the $595 million midpoint of revenue expectations of between $580 million to $610 million, Cypress would generate a 12% bump in sales.
Considering how well Cypress is delivering, don't be surprised if its total revenue is on the high end of guidance. It's no wonder Cypress stock is up 50% the past 12 months. Toss in its meager valuation of just 14 times forward earnings and 2.55% dividend yield, and Cypress is still a growth and income bargain despite its stellar stock price gains.
The envelope please...
Both Himax and Cypress offer outstanding upside potential, and with their 2%-plus payouts they're sound income alternatives as well. That said, Cypress' product diversification, the opportunities its core markets represent, and relative value earn it the ever-so-slight nod as the better buy
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