Chip Stocks Hold Up Amidst Market Meltdown
By Tiernan Ray
Semiconductor shares are holding up relatively well in a weak market today, with the Philadelphia Semiconductor Index (SOX) having actually shown a gain this morning, before succumbing to the market’s downward pull. Even now, the Sox is down only 1.5% at 347.05 compared to the 2.9% dip in the Nasdaq.
The strength seems to come from the fact that many chip analysts believe the shares now reflect the worst of macroeconomic worries, even if the Street still needs to bring its estimates down. There have been three cuts to forecast by pivotal chip players this week, Fairchild Semiconductor (FCS), Altera (ALTR), and Texas Instruments (TXN), and that has effectively resolved some of the anxious anticipation of investors awaiting those cuts.
Christopher Caso with Susquehanna Financial Group today writes that he expects further estimate cuts because of global economic uncertainty. But he’s also “comfortable buying product-cycle stories, including Qualcomm (QCOM) and Broadcom (BRCM).”
The increase in inventory levels in Q2 across the semiconductor industry was “modest,” he writes, at 5%, quarter over quarter, a positive for the chip industry.
“There is no change to our thesis as we continue to expect Street estimates to come down through 3Q earnings but believe with the SOX at 352, the risk/reward is approaching favorable levels.”
Glen Yeung of Citigroup just got done hosting a whole bunch of chip companies at Citi’s Global Technology Conference this week.
Those presentations pretty much confirmed what Yeung writes that he was expecting from the group, namely, a bottom in the chip business sometime this quarter or next.
“No doubt, data points are soft for chipmakers. Consistent with cuts we have made across the group (2x), we expect consensus estimates to fall,” writes Yeung. “However, the upward/total estimate revision ratio for chips is 36%, quickly approaching buy signals; we are encouraged that other contributors to consensus are finally cutting estimates.” |
