Top Picks 2022: Onto Innovation (ONTO)

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Onto Innovation (ONTO) has more than doubled over the past 12 months, yet its Quadrix Value score has stayed in a tight range, observes Rich Moroney, editor of the small cap oriented advisory service, Upside.

Its Overall rating of 90 means that the stock scores better than about 90% of the nearly 5,000 companies in our Quadrix ratings system. Its Quality ranking is 87 based on its long-term growth record and returns on assets, equity and investment.

Onto Innovation grew earnings per share 107% for the 12 months ended September, with sales up 38% and operating cash flow more than doubling. Onto generated $148 million in free cash flow over the past 12 months, up from $60 million for the year-earlier period.

The expansion of 5G networks and cloud computing is boosting demand for Onto’s products and services, which help semiconductor companies improve quality, performance, and reliability.

Analysts are increasingly bullish on Onto’s growth prospects, with earnings per share projected to rise 21% in 2022 on 14% higher revenue. The stock trades at 22 times estimated 2022 earnings, above the median of 19 for semiconductor stocks in the S&P 1500 Index.

Backing out net cash of $9 per share lowers Onto Innovation’s year-ahead price-to-earnings ratio to 20. The stock is rated as a “Best Buy”.

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A Look Back to 2021’s Top Performers

Last year, Rich Moroney picked two favorite ideas, and both were exceptionally strong performers. Here he updates those stocks:

Applied Materials (AMAT) rose 82% last year. The supplier to the semiconductor industry remains a top pick for 12-month and long-term gains. The consensus calls for profit growth of 19% in fiscal 2022 ending October and 7% in fiscal 2023, reflecting a slowdown from post-pandemic growth rates but continued strong demand as chipmakers attempt to satisfy product shortfalls by expanding capacity.

MYR Group (MYRG) rose 88% last year. The company, which provide electrical construction services, remains on our Best Buy List. While it no longer ranks as my favorite name in my small cap advisory service Upside, I still think it has another 15% to 20% of upside potential.