Himax Technologies: A Top Tech Stock to Buy and Hold in 2021

Himax Technologies (HIMX) was trading at a mere $3.25 in January of 2020. Since then, the stock has more than doubled.

Understandably, many expect tech stocks to underperform in 2021 given expectations of the economy reopening and faster economic growth. This dynamic could lead to slowing revenue growth and multiple contraction.

However, HIMX is likely to be an exception given that sales tech hardware is likely to remain strong in 2021 especially with stimulus checks and pent-up demand for consumer spending.

HIMX Background

HIMX was founded exactly two decades ago. The company’s headquarters is in Tainan, Taiwan. HIMX makes semiconductors used in flat panel displays such as TVs, desktop monitors, laptop computers, and virtual reality devices. In fact, HIMX products are even used in digital cameras and automobile navigation systems. HIMX engineers are hard at work, attempting to expand the company’s offerings to include chipset solutions for LCD TVs, microdisplays, and more.

HIMX by the Numbers

HIMX is currently trading merely one dollar below its 52-week high of $8.30. The stock has a 52-week low of $1.73. Though HIMX is a tech stock, it has a fairly reasonable forward P/E ratio of 16.41. The analysts are believers in HIMX, setting an average price target of $7.75, meaning there is more than a 5% upside to go.

Though the POWR Ratings have HIMX ranked 60th of 89 stocks in the Semiconductor & Wireless Chip category, the stock has solid POWR components. HIMX has an "A" grade in the Trade Grade component along with "B" grades in the Industry Rank and Buy & Hold Grade components. HIMX had a 2020 price return of 177.82%. The stock's six-month price return is 85.85%.

Check out the HIMX chart and you will find the stock appears to have established a trading floor at $6.50. Though the stock jumped above $8 last month, it sold off rather quickly as investors seized the opportunity to take profits off the table after a significant price increase in prior months.

The Results Investors are Looking For

Check out HIMX's latest quarterly report and you will find plenty of good news. HIMX sales are up nearly 50% on a year-over-year basis, hitting nearly $240 million. HIMX adjusted earnings per share hit 7 cents, meaning they spiked more than 280% on a year-over-year basis. The ongoing mobile device upgrade cycle is clearly fueling HIMX's growth and will likely continue to do so through 2021.

What’s in Store for the Future?

HIMX executives have made it clear the company will enjoy ongoing momentum in the quarter ahead. Leadership has guided a sequential sales hike of around 10%. The company's adjusted earnings per share in the upcoming quarter will likely be around 15 cents, meaning it will have increased by more than 70% on a year-over-year basis.

The majority of HIMX’s business is cyclical as the prices of chips change based on trends within the TV and smartphone industries. However, the upcoming year appears to be a fairly strong phase for smartphones thanks to the rollout of 5G. HIMX engineers are making progress in creating chips for both virtual realities and augmented reality, both of which are likely to become uber-popular in the years ahead.

Furthermore, HIMX’s three-dimensional image-sensing technology has the potential to be a major growth driver moving forward. HIMX brass has made it clear the company’s unique designs in this space are truly groundbreaking. Add in the fact that HIMX personnel are hard at work developing chips for machine vision and investors have all the more reason to be bullish.

Buy, Sell, or Hold?

Buy. HIMX is in a position to benefit from advances in technology across the board. Instead of putting all its metaphorical eggs in one basket, HIMX leadership prudently diversified its research, development, and production. Even if HIMX chips in one of the categories listed above end up inferior to those of a competitor, the company will still have the opportunity to dominate the market in other categories. This is the type of product and industry exposure savvy investors strongly value.

Look for HIMX to gradually move toward $10 or even higher as we progress through 2021. If you already own HIMX, hold tight and enjoy the ride.

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HIMX shares were trading at $7.30 per share on Wednesday morning, down $0.07 (-0.95%). Year-to-date, HIMX has declined -1.22%, versus a 0.45% rise in the benchmark S&P 500 index during the same period.

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.

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