Semiconductor stocks and related exchange traded funds have been pummeled over the second quarter, but the low prices may appeal to contrarian investors as the sector may continue to benefit from new innovations.

“Although the PC end market may well be stalled, the industry stands to continue to benefit from the new releases of a wide variety of technology products, such as Apple’s (NasdaqGS: AAPL) new iPhone and computer hardware makers’ new Ultrabook innovation,” according to Morningstar analyst Robert Goldsborough. [ETF Spotlight: Semiconductors]

Accordingly, Morningstar recommends the Market Vectors Semiconductor ETF (NSYEArca: SMH) as the best way to gain exposure to semiconductors. The fund holds 25 of the largest semiconductor companies, has a 0.35% expense ratio and trades at 85% of its fair value. Country allocations include U.S. 72%, Taiwain 13%, Netherlands 5%, U.K. 4%, Singapore 3% and Bermuda 2%.

The current bout of weakness in semiconductors is a reflection on the cyclical nature of the sector.

“Also, as the economy continues its long slog toward recovery, we expect corporate spending on IT – and especially on data center technology and networking infrastructure, both of which need semiconductors – to remain strong,” Goldsborough added.

According to the Semiconductor Industry Association, industry sales expanded in the low single digits in 2011 as demand for tablets and PCs increased. The association projects continued improvements through 2012.

The other three semiconductor ETF options include:

  • SPDR S&P Semiconductor ETF (NSYEArca: XSD): 0.35% expense ratio.
  • iShares PHLX SOX Semiconductor Sector Index Fund ETF (NSYEArca: SOXX): 0.48% expense ratio.
  • Powershares Dynamic Semiconductors ETF (NSYEArca: PSI): 0.63% expense ratio.

For more information on the semiconductor sub-sector, visit our semiconductor category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.