Along with the broader technology sector, semiconductor stocks are struggling this year. One of the takeaways from that slump is that investors need to be selective in the group.
Selectivity can be accomplished with the right exchange traded funds, and that includes the VanEck Vectors Semiconductor ETF (SMH). The $7.8 billion SMH holds 25 stocks, which is mostly in line with the category average. Fortunately, the VanEck fund is home to some of the chip stocks that could be 2022 rebound candidates.
Further bolstering the case for SMH for patient investors is the point that many of the key drivers of chip demand aren’t evaporating. Some may be getting stronger.
“Infrastructure-related projects, cloud investment and 5G, those aren’t going to stop,” said Rosenblatt Securities’ Hans Mosesmann in an interview with CNBC. “We’re in the midst of a very big semiconductor cycle. We think it’s the biggest ever.”
Among the chip names that still look appealing is Nvidia (NASDAQ:NVDA). That’s relevant in the SMH conversation because the stock is the ETF’s second-largest holding at a weight of 10%.
“Even in a troublesome macroenvironment, Nvidia continues to dominate the semiconductor discussion given its strong foothold in artificial intelligence, gaming and the data center space. Demand for these needs will linger even if consumer demand slows, making it a strength that could help Nvidia ride out a potential recession, analysts say,” reports Samantha Subin for CNBC.
Analysts are also bullish on some chip infrastructure stocks. Those include Analog Devices (ADI) and Broadcom (NASDAQ:AVGO). Those are SMH’s fourth- and seventh-largest holdings, respectively, combining for 10% of the fund’s weight.
“Investing in companies involved in manufacturing is a smart move for investors because they tend to work counter-cyclical and have low consumer exposure, said Baird’s Tristan Gerra. He highlights companies such as Broadcom, which deals with data centers and switch servers, and Analog Devices, which contributes to 5G infrastructure,” according to CNBC.
Other chip equities drawing favor among analysts are Applied Materials (NASDAQ:AMAT) and Texas Instruments (NASDAQ:TXN). That pair combines for 9.56% of SMH’s roster.
Texas Instruments “sells across major growth areas without overweighting itself in one market, and it maintains the same customers that consistently use the same chip,” notes CNBC.
For more news, information, and strategy, visit the Beyond Basic Beta Channel.
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.