The Federal Reserve is expected to announce its plans to begin tapering its monthly bond purchases today. Though the Fed's decision to cut bond purchases by $120 billion per month was widely anticipated, how it plans to execute the policy is vital to the market. In addition, Wall Street banks are ramping up their preparations for potentially heightened market volatility with the withdrawal of monetary stimulus.
Consequently, investors are expected to now shift their focus to quality growth stocks to dodge short-term market volatility and benefit from their long-term growth prospects. Moreover, with the economy in the expansionary phase, growth stocks should perform well.
Therefore, we think it could be wise to bet on quality stocks, Silicon Motion Technology Corporation (SIMO) and Ryerson Holding Corporation (RYI). Both the stocks possess solid growth attributes.
Silicon Motion Technology Corporation (SIMO)
Headquartered in Hong Kong, SIMO creates, develops, and sells NAND flash controllers for solid-state storage devices. It provides SSDs for PCs and other devices and eMMC and UFS mobile embedded storage for smartphones and IoT devices. The company markets and distributes its products to flash producers, module makers, hyperscales, and OEMs through direct-sales employees and independent electronics wholesalers.
In August, SIMO unveiled the new SM2320 single-chip high-performance, low-power, and cost-effective external portable SSD solution. Its controller solution is built with integrated hardware and firmware and high-level security features to fulfill the needs of high-performance gaming console users and low-power laptop users.
During the third quarter, ended September 30, 2021, SIMO’s revenue increased 101.7% year-over-year to $254.24 million. Its non-GAAP operating income grew 158.1% from its year-ago value to $74.77 million over this period. The company’s non-GAAP net income surged 126.4% from the prior-year quarter to $60.40 million. Its revenue and EBITDA have grown at 13.9% and 18.2% CAGRs , respectively, over the past three years.
SIMO’s EPS is expected to increase 102.3% in the current quarter and 40.5% next quarter. Analysts expect SIMO's revenue to increase 67.5% year-over-year to $903.64 million in its fiscal year 2021. The stock has gained 91.1% over the past year and 48.3% so far this year.
SIMO's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
SIMO is also rated a B grade for Growth, Value, and Momentum. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #4 of 99 stocks. To see additional POWR Ratings for Stability, Sentiment, and Quality for SIMO, click here.
Click here to checkout our Semiconductor Industry Report for 2021
Ryerson Holding Corporation (RYI)
Incorporated in 1842, RYI in Chicago, and its subsidiaries, produce and distribute industrial metals in the United States, Canada, Mexico, and China. The company provides a line of products in carbon steel, stainless steel, alloy steels, and aluminum, as well as nickel and red metals.
In September, RYI acquired Specialty Metals Processing, a toll processor located in Stow, Ohio. With this acquisition, RYI intends to expand its strong stainless products franchise, while also reinforcing its objective of providing great client experiences across all networks of digitally linked industrial metals service centers.
During the second quarter, ended June 30, 2021, RYI’s net sales revenue increased 83.9% year-over-year to $1.42 billion. Its operating income came in at $166.1 million, versus a $10.6 million operating loss in the prior-year period. The company reported $112.9 million in net income, compared to a $25.6 million net loss in the second quarter of 2020. Its EPS amounted to $2.91, compared to a $0.67 loss per share. And its revenue has increased at a 7.9% CAGR over the past five years, while its levered free cash flow has increased at an 81.2% annualized rate over the past three years.
The company's EPS is expected to grow 464.5% in the current quarter and 1123.5% in the next quarter. In addition, analysts expect RYI's revenue to increase 58.7% year-over-year to $5.5 billion in its fiscal year 2021. RYI's stock has gained 230.9% over the past year and 20.7% over the past month.
RYI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Momentum and Growth, and a B for Value. In the Industrial – Metals industry, it is ranked #1 of 35 stocks.
In total, we rate RYI on eight distinct levels. Beyond what we've stated above, we have also given RYI grades for Quality, Stability, and Sentiment. Get all the RYI ratings here.
Click here to check out our Industrial Sector Report for 2021
SIMO shares were trading at $71.66 per share on Wednesday morning, up $0.25 (+0.35%). Year-to-date, SIMO has gained 51.11%, versus a 24.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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