We recently compiled a list of The 12 Best Small Cap Tech Funds to Buy. In this article, we will look at how Silicon Motion Technology Corp. (NASDAQ:SIMO) where it stands against the best small-cap technology stocks to buy.
US Inflation and Expected Fed Rates
Inflation in the US is likely to hit a 3-year low of 2.6% in August, the lowest rate since March 2021, according to a survey of economists by FactSet. Inflation, excluding food and energy prices, is believed to be 3.2%.
Inflation rose for 4 years to 9.1% in June 2022 as the economy rebounded rapidly from the pandemic recession. The Fed responded with 11 rate hikes in 2022 and 2023, raising its key rate to 23 years and increasing the cost of borrowing more in the economy. The easing of inflation could pave the way for the Fed to start cutting interest rates next week.
AP News reported that Fed officials think inflation is slowly falling toward its 2% target. The Fed’s rate cut is expected to lower borrowing costs for consumers and businesses. Christopher Waller, the Fed’s key policy maker, noted that more than half of the goods and services tracked saw annual price declines of less than 2.5%.
Craig Johnson, Chief Market Analyst of Piper Sandler & Co., and Gene Goldman, CIO of Cetera, recently met to discuss the Fed’s interest rate cuts, and the performance of the stock sector.
Gene Goldman explained that his base case is expecting a 3-point rate cut of 25 basis points starting in September. His belief is in deflation, a slowdown in economic growth, and economic self-sufficiency in general, which he thinks is not as dangerous as some reports suggest. Goldman noted that although the labor market has shown mixed signals, with positive and negative data, market expectations for a deep rate cut may be overstated. Goldman acknowledged that political uncertainty can also contribute to market volatility.
Craig Johnson was also of the opinion that a 25 basis point cut is already expected by the market, suggesting that a 50 basis point cut could raise concerns among investors. He believes that a series of 25-point reductions will be consistent with their vision. Craig stressed the importance of staying calm considering that, historically, October has been a strong month for the markets, with gains seen 86% of the time since 1929.
Johnson acknowledged that while there has been some recent disruption, especially after the market’s worst week since March 2023, there has been a rebound with the Nasdaq and S&P showing positive moves. He emphasized the need to cancel the operation of MAG 7 stocks, which he believes is overdue. Instead, he pointed out that there are promising stocks in the $2 billion to $10 billion range that show solid growth potential, with up and up, and they seem to be building up the nations.
He noted the Nasdaq’s return of 0.75% but called it a dead cat, indicating that a larger recovery of 8-10% could be in the offing. He said the positive market sentiment for the day came from a job report that exceeded expectations.
Method
We used stock screeners to search for companies with sales between $1 billion and $10 billion, which is our definition of small stocks. We sorted our screen by market cap and looked at the top 25 stocks that matched our criteria. We then selected the 12 stocks that were the most popular among elite hedge funds and that analysts were following. The stocks are ranked in ascending order of the number of hedge funds that own shares in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds accumulate in? The reason is simple: our research has shown that we can outperform the market by mimicking the best hedge fund options. Our quarterly strategy picks 14 small and large stocks each quarter and has returned 275% since May 2014, outperforming its benchmark by 150 percent (syes more details here).
Silicon Motion Technology Corp. (NASDAQ:SIMO)
Market Capitalization as of September 11: $1.92 billion
Number of Hedge Fund Holders: 43
Silicon Motion Technology Corp. (NASDAQ:SIMO) is an American-Taiwanese company involved in the development of NAND flash integrated circuits for solid-state storage devices. It makes chips that help other companies make better flash memory devices, and they are used in things like smartphones, tablets, computers and USB drives, making these devices they are fast and reliable.
The company also offers InstantView docking technology, which allows its users to view the screen of any laptop, Chromebook, or Android phone without downloading a driver.
This quarter, the revenue from the NAND flash manufacturer grew about 15% sequentially, accounting for more than 60% of the total revenue, which was $210.67 million. This income in Q2 this year was 50.09% higher than Q2 in 2023. The growth is due to strong demand from PC and smartphone equipment manufacturers as original equipment manufacturers (OEMs).
NAND prices are increasing and are expected to rise throughout the rest of the year and into early 2025, driven by demand from data center and enterprise storage applications. Management says the company has unparalleled technical and financial resources to build next-generation controllers. Such reports build investor confidence. As of June 30, 43 hedge funds are long in the company, with a maximum value of $67,975,717 per Pertento Partnersa total of 839,310 shares.
Silicon Motion Technology Corp.’s (NASDAQ:SIMO) product diversity and technological leadership is expected to deliver 25-30% revenue growth each year. With the core business growing at an impressive rate, and growing growth in electronics and semiconductors across the Internet of Things, the company appears to be well positioned to benefit.
Ave Maria Growth Fund stated the following about Silicon Motion Technology Corporation (NASDAQ:SIMO) in its first quarter of 2024. investor letter:
“Silicon Motion Technology Corporation (NASDAQ: SIMO) is an independent semiconductor company specializing in low-cost flash memory controllers. Memory manufacturers often develop their own controllers in-house, but the rising cost of chip manufacturing makes it more profitable to outsource low-quality controller development to a third party. by Silicon Motion. This process of outsourcing aims to move from consumer applications to the server end market, and Silicon Motion’s new business manager is well positioned to contribute to the growth.
In general SIMO 9th level on our list of the best small-cap technology stocks to buy. While we appreciate the potential of SIMO as an investment, our confidence lies in the belief that AI stocks have great promise to bring high returns and do so in the short term. If you’re looking for an AI stock that’s more promising than the stock on our list but trades for less than 5 times its earnings, check out our report on low price of AI stock.
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Description: None. This article was originally published on Insider Monkey.
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