Too many investors beg and plead for a chance to get on board with winning stocks. Then when those stocks do take a breather, they get cold feet! Of course, soon afterwards, the stocks in question are off to the races again – and all they’re left with is regret.
My advice: Don’t make that same mistake with semiconductor stocks today! They’ve been on fire all year, with gains of 46% through last week. But in the past few days, they’ve felt the brunt of the recent volatility, pulling back sharply. That has some investors wondering if the relative weakness of the market’s strongest sector is a sign of even more weakness to come.
My contention is “No”! Look, corporate earnings overall are growing at a 10% annual clip, and they’re expected to do so again next year. GDP grew 3.3% in the last quarter, and it’s projected to grow another 3.5% in the fourth quarter.
That’s an environment where the most economically sensitive stocks, including makers of the building blocks of all our modern electronic devices, should perform very well. Indeed, we’ve been seeing substantially higher spot prices for memory chips (DRAM and NAND Flash), something that has boosted sales and earnings for chipmakers around the world.
All of that suggests this is just profit-taking in a sector that’s performed extremely well over the past year. Money is instead rotating (temporarily) into a sector that’s been lagging a bit – financials.
Take a look at this chart below. It shows the inverse relationship between technology (blue line) and financials (white line), the difference in 5-day price performance, and the extreme juxtaposition in recent days:
You can see we’re just getting another one of the temporary leadership shifts that happen every now and then. I believe money will find its way right back to the semis after this correction runs its course. It doesn’t hurt that foreign investors are flooding our markets with cash again, too. The Wall Street Journal just reported that foreigners have poured $66.4 billion into U.S. stocks this year, the most since 2012.
To help you take advantage of this pullback to get positioned for the next leg up, I put together a list using the screening tools and data available to subscribers of our Weiss Ratings Platinum service. It contains the highest-rated semiconductor and semiconductor equipment providers in our coverage universe.
I also included columns showing their performance year-to-date, as well as over a very recent 5-day period. That shows you how strong they’ve been in the past 11 months, and how weak they’ve been in the past few days.
|Data Date: 12/4/2017|
Bottom line: Don’t make the mistake too many other investors do! Take advantage of this dip to add some chip stocks on the cheap – using our Weiss Ratings data as your guide.