Best Semiconductor Stocks

NEW YORK (TheStreet) - With Avago Technologies (AVGO ) announcing it will acquire Broadcom (BRCM ) in a $37 billion deal, we decided to look at other potential investments in the semiconductor industry.

Semiconductors are found everywhere these days, from our phones to our cars to appliances. There were about 65 billion semiconductors sold in the U.S. in 2013. From 1960 to 2007 the semiconductor industry in the U.S. was responsible for 30% of the total productivity gains contributed to the U.S. economy. The industry directly employs close to 250, 000 people in the U.S., and supports over a million additional jobs in the U.S.

So what are the best semiconductor companies investors should be buying? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4, 300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Must Read: 3 Building Products Companies to Buy Now as Construction Booms

Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Editor's note: These ratings were developed before the Avago-Broadcom deal was announced.

TXN data by YCharts
3. Texas Instruments Incorporated (TXN - Get Report )
Rating: A
Market Cap: $58.3 billion
Year-to-date return: 4.7%

Texas Instruments Incorporated designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. It operates through two segments, Analog and Embedded Processing.

"We rate TEXAS INSTRUMENTS INC (TXN) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."