One of Wall Street’s prevailing stories in 2018 involved a debate about whether the semiconductor industry’s remarkable, multi-year growth cycle was finally coming to an end. After all, the chip business is inherently cyclical, and experienced investors have likely seen multiple pullbacks in semi stocks throughout their careers.
Being the forward-looking indicator that it often is, the market battered semiconductor stocks throughout the course of last year, as Wall Street prepared for a decline in demand and the ensuring supply and price concerns that would surely come with it.
Now, as 2019’s early rally continues to push forward, many investors are wondering whether buying opportunities might be available in the semiconductor industry again.
To discuss this, Associate Stock Strategist Ryan McQueeney takes a basic technical and fundamental look at the iShares PHLX Semiconductor ETF SOXX as well as two of its largest holdings, Texas Instruments TXN and Broadcom AVGO.
In today’s video, Ryan checks out the one-year performance of SOXX, overlaying its price chart with the key 50-day MA and 200-day MA indicators. These moving averages show that, while SOXX is rebounding well from a tough 2018, it is now entering a key area that could define whether it surges higher or gets stuck in range-bound trading.
Ryan also gives the same treatment to TXN and AVGO, which are two of SOXX’s top holdings.
TXN is showing similar technical features as the broader fund, and that could very well have to do with its uncertain fundamental nature. While earnings growth for fiscal 2018 is expected to finish at an impressive 30%, Texas Instruments has seen several negative revisions to its 2019 estimates and is now expected to see its earnings pull back on the year.
This is an illustration of the peak-to-trough process that occurs when cycles end. So far, Texas Instruments is only projected to see its earnings fall about 1%. If that holds up as an earnings bottom, the chip giant should be well positioned for the next bullish cycle. But at 18x earnings, a yield of just 3.2%, and a new earnings report coming next week, TXN still looks risky compared to AVGO.
This is because AVGO sits at a much better spot in terms of both technical indicators and earnings trends. The stock is comfortably above its 50-day and 200-day MAs, giving it some potential levels of support if it does feel pressure soon. Moreover, the stock’s earnings estimates are trending higher, and EPS growth is expected to occur in both the current and upcoming fiscal years. It also trades at just 11x earnings and has a dividend yield of 4.2%.
Want to hear more about the differences in TXN and AVGO right now? Check out today’s video!
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iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
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