The global semiconductor industry could be worth US$1 trillion in 2035 based on growth estimates by market experts. Large companies like Nvidia, Advanced Micro Devices, and Intel are the top prospects of investors who plan to ride on the wave.
While Canada needs more constituents in the sector, the federal government is prepared to contribute $36 million to advance the production and manufacturing of semiconductor products and services. Meanwhile, growth investors could include 5N Plus (TSX:VNP) and Celestica (TSX:CLS) on their watchlists, as both companies could benefit from the potential upswing and expansion of this vital industry.
High-growth, value-added end markets
5N Plus is a specialty semiconductors and performance materials producer for key sectors, including pharmaceutical, renewable energy, space, and security. Besides North America, the $300.8 million Montreal-based company has facilities in Europe and Asia.
The semiconductor stock is far from mediocre, evidenced by its 16.9% year-to-date gain. Also, at only $3.40 per share, the trailing one-year price return is 181%. Had you invested $10,043 (8,300 shares) a year ago, your money would be worth $28,200 today. After recently reporting solid financial results, 5N Plus is a screaming buy.
In Q1 2023, revenue dropped 14.1% to US$55.3 million versus Q1 2022. Management attributes the decline to the exit from low-margin extractive and catalytic products in the back half of 2022. The quarter’s highlight was the net earnings of US$1.5 million compared to the US$5.8 million net loss a year ago.
Its President and CEO, Gervais Jacques, said, “Despite a complex global environment, 5N Plus continues to capitalize on its momentum as a partner of choice in high-growth and value-added end markets. He notes the remarkable adjusted EBITDA growth (from US$5.6 million to US$8.8 million), margin performance, and record backlog.
5N Plus saw strong demand for specialty semiconductors and a favourable product mix in the Performance Materials segment. Jacques said the team would continue to secure long-term commercial partnerships and increase production capacity in the former to meet the extensive pipeline of the contracted work pipeline.
Management’s primary focus is to build on the momentum and reap the full potential of its strategy by meeting customer demand in value-added markets. 5N Plus will also offer products with high-growth potential and superior margins. The company keenly monitors the renewable energy, space solar power, health, and pharmaceutical sectors.
Tailwinds and growth catalysts
Celestica takes pride in its complete lifecycle solutions to optimize the supply chain. The $1.8 billion company has two operating segments, Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS), contributing to revenues. Its competitive advantage is the vertical integration with an established supply base in key geographies.
If you’re wondering where Celestica stands in the semiconductor space, it’s the leading supplier of Water Fab Equipment to the top semiconductor WFE manufacturers. Management believes that 5G, Internet-of-Things, technology advancements, and chip shortages are tailwinds if not growth catalysts.
While net earnings in Q1 2023 declined 11.7% to US$21.8 million, adjusted free cash flow (FCF) soared 1,740% year over year to US$9.2 million. Like 5N Plus, this tech stock outperforms the broader market. At $14.93 per share, the year-to-date gain is 9%.
Ambitious goal
Expect 5N Plus and Celestica to be at the front and center if Canada is serious about developing and rapidly growing its semiconductor industry.
