The tech sector could even see more free cash on hand if Congress proceeds with plans to cut down capital gains on repatriated earnings or follow in President-elect Donald Trump’s proposed repatriation tax holiday policy that would encourage large multi-national companies to bring back hundreds of billions of dollars in cash to the U.S. for possible use in dividends, deals or other projects. Trump plans to levy a 10% repatriation tax on U.S. companies’ overseas profits from foreign subsidiaries, compared to the current 35% tax rate.
Still, investors could be paying up for future catalysts for semiconductor and broader technology names. If there is a silver lining for the rising valuations on chip stocks it is that some industry observers believe the group’s valuations should not be measured in the traditional sense because of the evolution of the semiconductor business.
“That rally has pushed the price-earnings ratio for the semiconductor index to 28, versus its seven-year average around 22. The S&P 500’s price-to-earnings also sits around 22, making chip stocks not only expensive versus their historical norms, but also versus the wider market as well,” reports ETF Daily News.
Traders looking to make bearish bets on chip ETFs can consider the ProShares UltraShort Semiconductors (NYSEArca: SSG), which takes the -2x or -200% daily performance of the Dow Jones U.S. Semiconductors Index and the Direxion Daily Semiconductors Bear 3x Shares (NYSEArca: SOXS), which provides a -3x or -300% performance of the PHLX Semiconductor Select Index.
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