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Ignore Semiconductor Selloff, Buy These 4 Stocks


On Sep 6, tech stocks took a beating for the second consecutive day, led by a huge selloff in semiconductor stocks after Morgan Stanley MS warned of weakness in the memory market. Also, KLA-Tencor Corporation KLAC softened its outlook for the rest of the year. This saw other semiconductor stocks too plummeting on Thursday.

That said, tech stocks have been largely responsible for the long-running market rally. But bubble fears are making a comeback courtesy of a bunch of market watchers. They feel that the trade war has finally started taking a toll on tech stocks. However, the sector’s fundamentals are still strong, with global semiconductor sales increasing in July, according to the Semiconductor Industry Association (SIA). Given this scenario, it makes semiconductors stocks must haves for your portfolio.

Semiconductor Stocks Rattle Tech Sector

On Sep 6, a flurry of bad news dented investors’ confidence. First, Morgan Stanley warned about weakness in the memory market. If this wasn’t enough, KLA-Tencor, which makes equipment used in semiconductors, told investors at Citigroup’s technology conference that its December quarter would be “less up” than thought because of weakness in the memory market.

This resulted in investors panicking leading to huge selloffs, with Micron Technology, Inc. MU at the helm of the carnage. Micron’s shares plummeted 9.9% after the Philadelphia Semiconductor Index declined 2.7% with all major semiconductors taking a hit. Shares of semiconductor equipment maker Applied Materials, Inc. AMT and KLA-Tencor fell 5.3% and 9.7%, respectively.

Global Semiconductor Sales Rise

Semiconductor stocks may have been taking a hit but tech stocks have been responsible for the market’s rally for quite some time now. Despite the recent beating, the Semiconductor Industry Association on Sep 4 said that global semiconductor sales reached $39.5 billion in July, up 17.4% year over year. Moreover, global semiconductor sales were 0.4% higher than June’s total of $39.3 billion.

John Neuffer, president and CEO, Semiconductor Industry Association, said that the global semiconductor industry posted its “highest-ever monthly sales in July,” with “growth of greater than 20% in China and Americas.” Sales increased 29.4% in China, followed by 20.7% and 11.7% in Americas and Europe.

Moreover, on Sep 5, the World Semiconductor Trade Statistics (WSTS) raised its forecast for the global chip market in 2018 for the second time in two months. The WSTS now expects the worldwide semiconductor market to rise 15.7% in 2018 to $477 billion.

Our Choices

The United States is the largest semiconductor manufacturing country, with China being its biggest market. Despite these fears that are gripping markets, tech stocks aren’t as susceptible to trade war as industrials. Also, China’s limitations in building its own tech industry might restrict it from acting against U.S.-based tech players.

With the global semiconductor industry posting its highest-ever monthly sales in July, the recent fears may be overblown. This is why picking semiconductor stocks still looks like a smart option at this point. However, picking winning stocks may be difficult. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Maxim Integrated Products, Inc. MXIM designs, develops, manufactures, and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits.

The company has expected earnings growth of 14.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 6.5% over the last 60 days. The stock carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Vishay Intertechnology, Inc. VSHis one of the world's largest manufacturers of discrete semiconductors (diodes, MOSFETs, and infrared optoelectronics) and passive electronic components (resistors, inductors and capacitors).

Vishay Intertechnology has a Zacks Rank #1. The company has expected earnings growth of 39.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 11.7% over the last 60 days.

ON Semiconductor Corporation ON is a supplier of broadband and power management integrated circuits and standard semiconductors used in numerous advanced devices.

ON Semiconductor Corporation has a Zacks Rank #2 (Buy). The company has expected earnings growth of 26% for the current year. The Zacks Consensus Estimate for the current year has improved by 4% over the last 60 days.

Texas Instruments Incorporated TXN is a global semiconductor design and manufacturing company that develops analog ICs and embedded processors.

Texas Instrumentshas a Zacks Rank #2. The company has expected earnings growth of 32.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.1% over the last 60 days.

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