- 5 Rocket Stocks for Gluttonous Turkey Day Gains
- Time to Sell These 5 'Toxic' Stocks
- 5 Earnings Short-Squeeze Plays
- 5 Must-See Charts
- 5 Stocks With Big Insider Buying
5 Semiconductor Stocks to Buy Now - 9092 views
MINNEAPOLIS (Stockpickr) -- The semiconductor industry has been one of the worst-performing sectors in the market of late. Since the end of April, the Philadelphia Semiconductor Index is down 15%, far worse than the 4% drop in the Dow Jones Industrial Average. Concerns about high unemployment and fiscal crisis across the globe have investors convinced the end is near for this important segment of the economy.
I won’t go so far as to say the fears of those selling chip stocks are irrational, but something doesn’t make sense. Three of the biggest leaders in technology have recently released earnings that would dispute the argument that technology sales are slipping.
Google (GOOG) started the trend with a blowout quarter fueled by strong Android sales. IBM (IBM) followed with its own solid report that beat estimates. Finally, Apple (AAPL) blew the top of the market with a report that even the most optimistic analyst could not have foreseen.
More From Stockpickr
From the sounds of it technology is doing just fine. More important, the trickle-down impact from the performance of the leaders is likely to be much better than current expectations. None of this happens without semiconductors. So why are semiconductors down so much?
That is a good question, but given the volatility of stocks in the group, the move down should be no surprise. The industry is quite cyclical and known for boom and busts. From time to time, investors like to guess when the music will stop. This spring was one of those times.
It should be no surprise that I would view the selling as an opportunity to buy chip stocks. Here are five names to consider.
Fairchild Semiconductor (FCS) designs, develops, manufactures and sells power analog, power discreet and non-power semiconductor solutions globally. Its products are all over the mobile and computing world. Given the impressive performance of Google and Apple, Fairchild is a likely beneficiary.
Since the end of April, shares of Fairchild are down 21%. The stock enjoyed a very brief pop after it reported earnings last week. On July 14, Fairchild jumped to $17.75 per share after closing the prior day at $16.13 per share. Impressive indeed, but the rally quickly faded as Fairchild closed the day at $16.59. You can buy the stock today for $16.52 per share.
The stock moved higher because operating results in the quarter exceeded estimates by a penny per share, and guidance for the third quarter was in line with expectations. No sign of slowing down here. With shares trading for just 10 times current year estimates, Fairchild is a buy.
Fairchild shows up on a recent list of Earnings Short-Squeeze Plays.
Reflecting the general pessimism regarding semiconductor stocks, shares of Altera (ALTR) were down more than 5% on Wednesday after reporting earnings results that beat expectations. The selling pushed the stock to a loss of 15% since the end of April. The selling makes no sense considering that the company beat estimates by a penny per share.
Instead, investors were focused on the small revenue miss for the period and not the company's revenue outlook for the current quarter, which was higher than Wall Street expected. All in all, it was a very good report, with no signs of pending doom.
Current growth expectations for the company are too low. Analysts expect Altera to improve earnings by 6% from the current year to 2012. With the recent selling, shares trade for just 16 times current-year estimates of $2.58 per share. I would use the discount as a buying opportunity.
Xilinx (XLNX) is a specialized semiconductor company that produces specialized programmable logic devices offering unique solutions for companies across the globe. When I think of Xilinx I think of a company like IBM that is more consultative in nature. As a result, Xilinx has held up better than other semiconductor stocks during the recent selloff.
Shares of Xilinx are down only 4% since the end of April. Support in value appears to come from two solid quarters of earnings that beat expectation. The company recently announced earnings of 65 cents per share, a penny ahead of expectations. In addition, Xilinx announced that it expects third-quarter revenue ahead of Wall Street estimates.
Shares are lower in the wake of the news, making the stock all the more attractive to buy today. The average Wall Street estimate is for Xilinx to make $2.18 per share for the year ending March 31, 2012. That number increases 15% to $2.58 per share in the following year. You can buy that growth for 15 times current year estimates -- and I would do just that.
Xilinx is one of the top holdings of John Hussman's Hussman Econometrics Advisors.
Advanced Micro Devices
Investors have put shares of Advanced Micro Devices (AMD) in the penalty box, for its inability to name a new leader. Going on six months, the diligent search by the company to find the right person for the job has negatively impacted the stock. That overhang is over and above the general pessimism in the sector right now.
Historically, capitalizing on chaos usually works well for investors. Shares of AMD are down a crushing 29% since the end of April and down 22% since the start of the year. Despite the leadership void, AMD is doing fine on an operating basis. The company has exceeded estimates for earnings in each of the last four quarters.
I think the stock is being unfairly punished for its patience in identifying a new CEO. The average Wall Street estimate for earnings in 2011 is 54 cents per share. That number grows by 39% in 2012 to 75 cents per share. Investors should buy that growth at a price of just 12 times current year estimates.
AMD was featured recently in "Heavily Shorted Stocks That Could Pop on Earnings."
If you are hesitant to own shares of superstar Apple, consider owning semiconductor stock Cirrus Logic (CRUS), which makes components for Apple products such as the iPhone and iPad. Cirrus is a specialized semiconductor stock that makes audio sensor chips for these products and more. Shares of Cirrus have actually gained value since the end of April moving 7% higher.
Half of that gain comes on Wednesday after the huge quarter from Apple. Still the stock is undervalued. The company reports earnings for the period ended June 30 before the market opens on Thursday. The estimate is for the company to make 24 cents per share in the period. Based on Apple’s report, it is reasonable to expect Cirrus to beat that number by a wide margin.
For the full year ending March 31, 2012, the average Wall Street estimate is for Cirrus to make $1.23 per share. The expectation is for 21% growth the following year to $1.49 per share. You can buy the stock including recent gains for 14 times 2012 earnings estimates. It looks like more gains are in store for Cirrus.
To see these stocks in action, visit the 5 Semiconductor Stocks to Buy now portfolio.
-- Written by Jamie Dlugosch in Minneapolis.
At the time of publication, author had no positions in stocks mentioned.
Jamie Dlugosch is a founder and contributor to MainStreet Investor and MainStreet Accredited Investor. Formerly, he was president and CEO of Al Frank Asset Management. He has contributed editorially to The Rational Investor, The Prudent Speculator, Penny Stock Winners and InvestorPlace Media.