After being embroiled in a trade war for over a year now, the United States and China are finally making progress on a preliminary trade deal. Both countries have agreed to eliminate some existing tariffs and more in phases as the talks progress.
Following such developments, chipmakers in the United States heaved a sigh of relief due to their significant exposure to China. This is because the ongoing trade war has weighed on them by hampering the demand-supply dynamics.
Rising Optimism on Trade Front
A protracted trade between the two economic giants have rattled the stock markets. The retaliatory tariffs imposed by the two economic giants over time have routed trade-sensitive industries.
However, situations on the trade front seem to be mellowing since October, with the United States and China agreeing on a “phase one” deal. The deal, which was supposed to be signed at the APEC Summit in November, has been deferred to December.
However, on Nov 7, China’s commerce ministry represented by Gao Feng said that both countries have agreed to lift existing trade tariffs on each other in phases. The negotiating teams have been making “serious and constructive discussions” over the past two weeks, said Gao.
Gao added that the preliminary agreement rests on the United States and China “simultaneously undo(ing) existing additional tariffs in the same proportion to reach phase one deal.” In reply to Gao’s statement, White House spokeswoman Stephanie Grisham said in an interview with Fox News that the news was a “very optimistic” sign and the Trump administration is certain that both sides “will reach a deal soon.”
Following these developments, the three major benchmarks hit fresh records on Nov 7. As a matter of fact,the Philadelphia Semiconductor Index, with a significant exposure to China, closed 0.6% higher after rising as much as 1.5% during the trading session.
Why Buy Semiconductor Stocks
The space has witnessed a revolution of sorts in recent times, emerging as a fast-evolving sector. Further, the advent of 5G era, cloud computing, IoT and AI chipmakers have given the space a boost.
Despite the prevailing trade war that is damping the supply chain and chip sales, iShares PHLX Semiconductor ETF (SOXX) has gained 48.5% on a year-to-date basis, surpassing the S&P 500’s gain of 22.9% in the same period. Both countries rely heavily on each other’s resources when it comes to manufacturing semiconductors. Any development on the trade war front is only likely to boost the fortunes of the space.
Our Top 5 Picks
Given such positive developments on the U.S.-China trade front, chipmakers are poised to grow. We have, thus, selected five stocks that should boost your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Power Integrations, Inc. POWI is a publicly traded company that designs, develops and markets analog and mixed-signal integrated circuits (ICs), and other electronic components and circuitry used in high-voltage power conversion worldwide. The company’s expected earnings growth rate for the current quarter is 44.4%, which is above the Semiconductors - Powerindustry’s decline of 28.6%.
The Zacks Consensus Estimate for current-year earnings has improved 2.9% over the past 60 days. Power Integrations flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Advanced Energy Industries, Inc. AEIS is a publicly traded company that designs, manufactures, sells and supports power conversion, measurement and control solutions. The company’s expected earnings growth rate for the next year is 58.2%, which is above the Semiconductor Equipment - Wafer Fabricationindustry’s projected rally of 36.7%.
The Zacks Consensus Estimate for current-year earnings has improved 6.5% over the past 60 days. Advanced Energy Industries sports a Zacks Rank #1.
Akoustis Technologies, Inc. AKTS is a publicly traded company that develops, designs, manufactures and sells radio frequency (RF) filter products for the mobile wireless device industry. The company’s expected earnings growth rate for the current quarter is 30.3%, which is above the Semiconductors - Radio Frequencyindustry’s projected rally of 18.1%.
The Zacks Consensus Estimate for current-year earnings has improved 10.9% over the past 60 days. Akoustis Technologies carries a Zacks Rank #2.
Intel Corporation INTC is a publicly traded company that offers computing, networking, data storage and communication solutions worldwide. The company’s expected earnings growth rate for the next quarter is nearly 18%, which is above the Semiconductor - Generalindustry’s projected rally of 6.5%.
The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the past 60 days. Intel carries a Zacks Rank #2.
Inphi Corporation IPHI is a publicly traded company that provides high-speed analog and mixed signal semiconductor solutions for the communications, data center and computing markets worldwide. The company’s expected earnings growth rate for the current year is 83.7%, which is above the Semiconductor - Analog and Mixedindustry’s decline of 16.8%.
The Zacks Consensus Estimate for current-year earnings has improved 6.8% over the past 60 days. Inphi carries a Zacks Rank #2.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Intel Corporation (INTC) : Free Stock Analysis Report
Inphi Corporation (IPHI) : Free Stock Analysis Report
Power Integrations, Inc. (POWI) : Free Stock Analysis Report
Advanced Energy Industries, Inc. (AEIS) : Free Stock Analysis Report
Akoustis Technologies, Inc. (AKTS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research