May 10th, 2007
Five Reasons to Buy Semiconductor Stocks Today
A reader complained yesterday that we have been too negative. While we aren’t going to go crazy and have a whole positivity day, we will take the time to outline the bull case for the industry on which we have been most negative: semiconductors.
- The bad news is known. When we started harping about oversupply, it was the farthest thing from anyone’s mind. Like Heisenberg’s uncertainty principle, the act of observation can alter the experiment.
- The market is ignoring the fundamentals. Related to point 1, the market knows about the bad fundamentals and doesn’t care. Often this means that the bad news is sufficiently well known to be priced in. This is of course the weakest reason, as the market ignored the fundamentals in 2000 as well.
- Demand may be ready to pick up. Double-digit growth from a tech distributor for the first time in a long time should not be ignored. The Vista hoopla has passed, now the nuts and bolts work may be beginning.
- Supply and demand will soon realign. For the first time since 2005, orders for new equipment grew at a slower rate than semiconductor end demand. The longer this situation continues, the healthier it will be for future industry sales, pricing and profit margins.
- The game has changed. Forget private equity buyers. For the first time a semiconductor management team decided it was more important to take capital out of the industry than to add more. This is a sea change in semiconductor management-think, and the strong positive reaction from investors ensures that the wave will continue to build.
There. That wasn’t so hard, was it? Stay tuned for our five reasons NOT to buy semiconductor stocks today.
Disclosure: William Trent has a long position in SMH.
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Topics: PowerWave Technologies (PWAV), Cree (CREE), Lattice Semiconductor (LSCC), Lam Research (LRCX), Xilinx (XLNX), AGR, Cadence Design Systems (CDNS), LSI Corp. (LSI), Altera (ALTR), Sandisk (SNDK), Intersil (ISIL), Hynix Semiconductor (HXSCF.PK), Elpida (ELPDF.PK), Winbond Electronics (WBEMF.PK), Qimonda (QI), Samsung Electronics (SSNLF.PK), MicroSemi (MSCC), Standard Microsystems (SMSC), Supertex (SUPX), Analog Devices (ADI), Linear Technology (LLTC), Applied Materials (AMAT), Taiwan Semiconductor (TSM), MEMC Electronic Materials (WFR), Maxim Integrated Products (MXIM), Texas Instruments (TXN), Silicon Laboratories (SLAB), Intel (INTC), Semiconductors, Advanced Micro Devices (AMD), KLA-Tencor (KLAC), Marvell Technology (MRVL), NVIDIA (NVDA), Micron Technology (MU), United Microelectronics (UMC), Semiconductor HOLDRS (SMH), STMicroelectronics (STM), Freescale (FSL), ON Semiconductor (ONNN), National Semiconductor (NSM), Stock Market | RSS
[…] As far as the likely order pattern, I’m with Citigroup on this one, as I was warning about pending overcapacity issues for the better part of the last year. The chart of memory prices is not the sort of pattern that inspires new investment. Now that it is happening, however, I’m looking for opportunities to buy on the news. For more information, see all articles on: Stock Market, Semis, AMAT, WFR, KLAC, SSNLF.PK This article is for entertainment purposes only and reflects the author’s opinion. It is not a solicitation or advice to buy or sell any securities mentioned. Always consult a qualified advisor before making investment decisions. […]