With most semiconductor stocks having rallied strongly on the expectation of sharp V-shaped recoveries in major markets like autos and industrials, finding bargains in the space has gotten more challenging. While Renesas Electronics (OTCPK:RNECY) too has seen a strong recovery rebound (more than doubling from its April lows), the stock has significantly lagged the SOX index over the past year, as well as peers/rivals like NXP Semiconductors (NXPI), STMicro (STM), and Texas Instruments (TXN), on what I believe are elevated concerns about market share loss in autos and inadequate margin leverage.
I don’t want to underplay the risks that Renesas is facing in the auto business; companies like Infineon (OTCQX:IFNNY), NXP, ON Semi (ON), and STMicro are targeting the sector aggressively, and I don’t see Renesas as particularly well-placed in vehicle electrification. On the other hand, the non-auto business is doing well, with the IDT acquisition having added some meaningful diversification. Not unlike the situation with STMicro a year or so ago, I think there’s too much pessimism here, and I believe the combination of improving end-markets and improved execution can drive a higher valuation for the shares.
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