Investors that missed out on prior torrid runs by semiconductor stocks can take heart because the group is faltering this year even though a global supply shortage lingers.
The silver lining is that valuations in the group are turning more attractive, and that could be a signal for investors to consider exchange traded funds such as the VanEck Vectors Semiconductor ETF (SMH). The $8.3 billion SMH follows the MVIS US Listed Semiconductor 25 Index and holds 24 stocks.
That focused line-up is a hallmark of many semiconductor ETFs, but in the case of SMH, its concentrated roster could be a near-term advantage for investors looking to capitalize on some favorable multiples in the chip landscape.
Barron’s recently ran a screen for “the 15 lowest price to 2022 estimated earnings ratios in the PHLX Semiconductor Sector Index,” turning up plenty of SMH member firms in the process.
“Amkor Technology and Micron Technology switched places but are still the two cheapest chip manufacturers. Shares of both have fared better than their peers, recently down 8.3% and 2.8% year to date, respectively. Qorvo and Skyworks Solutions still rank fourth and fifth,” reports Connor Smith for the financial journal.
Micron Technology, Skyworks Solutions, and Qorvo combine for about 8% of SMH’s roster. Another chip name that currently looks inexpensive is Dow component Intel (NASDAQ:INTC). That semiconductor giant accounts for 5.20% of SMH’s roster, and it could take some time for the company’s turnaround efforts to bear fruit.
“Last week, the firm’s analyst day made it clear that Intel’s yearslong turnaround plan will be expensive. That said, Raymond James analyst Chris Caso upgraded the stock on Wednesday to Market Perform from Underperform, arguing his bearish thesis had played out,” according to Barron’s.
Other marquee SMH member firms appearing on the Barron’s list of inexpensive semiconductor stocks include Qualcomm (NASDAQ:QCOM) and Texas Instruments (NASDAQ:TXN). Those are the ETF’s fifth- and seventh-largest holdings, respectively, combining for over 10% of the fund’s weight.
Applied Materials (NASDAQ:AMAT) and NXP Semiconductors (NASDAQ:NXPI), which combine for roughly 8% of SMH’s weight, are also part of the group of chip stocks with compelling valuations.
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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.