NXP

It’s game on for those value managers still in business, and the dance floor is quickly filling up as vaccine headlines spark talk of a sustained period of leadership for the down-trodden art. And yet the buy-it-cheap approach comes as Covid uncertainty persists, PMIs are near record territory, financial conditions are pretty much as-good-as-it-gets and sentiment is on a full-blooded charge higher. With the fabled tech trade also hissing air, the set-up offers a flat wicket for conviction stock picking. Away from the hand wringing over the sustainability of the ‘recovery trade’, one cohort that stands out, in the context of buying into long-term structural upside, is the semiconductor sector; where powerful, durable trends such as cloud, AI, gaming, and a world of domestic appliances with more computing power than the Apollo 11 spacecraft, look set to colour the investing landscape for years to come. And one traditional ‘old-economy’ sector that is in the grip of technological change is the automotive industry, where the rapid adoption of electric vehicles is being fanned by fiery political rhetoric. NXP is the leading semi supplier to the auto space, where it garners near on half of its revenue. It is the number one player in ADAS radar, the active safety systems, and a leader in battery management, both of which analysts expect to grow at >30% CAGR. And yet despite this attractive market position, the shares trade well below many peers. Looking beyond the short-term Covid hit, the company offers significant gearing into long-term megatrends. As economies heal and demand returns – and investors look up, not down – a re-rating could ensue. In addition to autos, the company has leading market positions in mobile transactions, microcontrollers and radio frequency power solutions, the latter a key factor in the development of mobile devices on the cusp of the 5G era. There are risks, as ever: more competition in microcontrollers might pressure the margin, and economies could heal slower than the market expects. That said, when looking at the market positions of NXP, and thinking about how the world is likely to evolve over the coming decade, the current set-up at NXP looks more than interesting.