Semiconductors are the silicon backbone of the digital revolution. But they’re also susceptible to economic fluctuations as chip demand will ebb and flow with capital spending. Unfortunately, the market seems to be predicting a downturn as the industry has tumbled by 18.3% over the past six months. This performance was much worse than the S&P 500’s 2% fall.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here is one semiconductor stock boasting a durable advantage and two best left ignored.

Two Semiconductor Stocks to Sell:

Sensata Technologies (ST)

Market Cap: $3.63 billion

Originally a temperature sensor control maker and a subsidiary of Texas Instruments for 60 years, Sensata Technology Holdings (NYSE: ST) is a leading supplier of analog sensors used in industrial and transportation applications, best known for its dominant position in the tire pressure monitoring systems in cars.

Why Do We Pass on ST?

1. Annual revenue growth of 2.7% over the last five years was below our standards for the semiconductor sector
2. Projected sales decline of 7.6% over the next 12 months indicates demand will continue deteriorating
3. Already-low operating margin of 4.1% fell over the last five years, and the smaller profit dollars make it harder to react to unexpected market developments

Sensata Technologies’s stock price of $24.27 implies a valuation ratio of 7.4x forward price-to-earnings. If you’re considering ST for your portfolio, see our FREE research report to learn more.

FormFactor (FORM)

Market Cap: $2.19 billion

With customers across the foundry and fabless markets, FormFactor (NASDAQ: FORM) is a US-based provider of test and measurement technologies for semiconductors.

Why Should You Dump FORM?

1. Muted 5.3% annual revenue growth over the last five years shows its demand lagged behind its semiconductor peers
2. Projected sales growth of 2.1% for the next 12 months suggests sluggish demand
3. 5.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $28.27 per share, FormFactor trades at 17x forward price-to-earnings. To fully understand why you should be careful with FORM, check out our full research report (it’s free).

One Semiconductor Stock to Watch:

MACOM (MTSI)

Market Cap: $7.46 billion

Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.

Why Do We Like MTSI?

1. 6.6% annual revenue growth over the last two years surpassed the sector average as its products resonated with customers
2. Exciting sales outlook for the upcoming 12 months calls for 21.1% growth, an acceleration from its two-year trend
3. Earnings per share grew by 49.2% annually over the last five years, massively outpacing its peers

MACOM is trading at $99.74 per share, or 27.5x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.

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