Interesting:
Silicon Valley: Think the Rally in Chip Stocks Is Over? Think Again.
By Marcy Burstiner
Staff Reporter
12/5/98 12:16 AM ET
SAN FRANCISCO -- Think semiconductor stocks are going wild? Just wait. While many chip stocks seem pricey, and some are trading at 1998 highs, analysts and money managers say it's not time to sell yet.
Investors seem to be buying chip stocks on any morsel of good news these days, and more good news is coming. The Semiconductor Industry Association will release early next week its global October chip-sales figures. Industry reports of strong demand suggest those to be up significantly from September.
The continued recovery in semiconductor sales mixed with low inventory levels points to further gains in chip stocks. "I'm optimistic about low inventory levels. Just-in-time and book-to-order moves are keeping low inventories out there," says Claude Hazen, an analyst at C.E. Unterberg Towbin.
In another sign of industry strength, bellwether Intel (INTC:Nasdaq) reiterated Friday that fourth-quarter revenues will rise 8% to 10% from the previous quarter. And in March, Intel will release its Katmai processor for high-end computers. Hazen says that too could act as a catalyst for buying. (Unterberg has no underwriting relationship with Intel.)
Chip stocks got a big burst of energy this week as companies showed up at the Credit Suisse First Boston Technology Conference, the Richmond Society of Financial Analysts meeting and the Western Cable Show to tell investors of rising demand for chips and equipment -- a dramatic change from the bleak presentations of conferences past.
At first glance, it might seem too late in the game for anyone who has waited to buy. Intel hit an all-time high Tuesday of 117 1/8. The stock was trading at 116 5/16 Friday, up 6% on the day. After bottoming at 189.90 on Oct. 8, the Philadelphia Semiconductor Index has since risen 78% to 338.04. And valuations are high: Intel's price-to-earnings ratio stands at 35, Applied Materials' (AMAT:Nasdaq) at 70. Communications chip makers Vitesse (VTSS:Nasdaq) and TranSwitch (TXCC:Nasdaq) are trading at 61 and 114 times earnings, respectively.
Still, many stocks are well below record highs. Equipment maker Teradayne (TER:NYSE), for example, has risen 152% since Oct. 8, but its share price of 39 1/2 is still 16% under its year high of 47 3/16 and 22% below the all-time high of 50 11/16 it reached in October 1997. Advanced Micro Devices (AMD:NYSE), trading Friday at 31 3/8, is still 34% below the all-time high of 47 3/8 it reached in March 1997. And the SOX is still 16% under its all-time high of 403, reached in August 1997.
Marty Whitman, portfolio manager at the $2 billion Third Avenue Funds, stocked up on chip equipment stocks during the summer, but never expected the sudden surge that he's seen in some of them: GaSonics International (GSNX :Nasdaq) has gained 162% since Oct. 8, and Electro Scientific Industries (ESIO:Nasdaq) is up 157%. "It's been spectacular," he says. But Whitman has no intention of taking profits yet. "I think the next peak will be better than the last peak in earnings," he says.
Edwin Vroom, a money manager with Roanoke Asset Management, which manages $250 million in funds, invests heavily in semiconductors and says the high prices are keeping him from buying more chip stocks right now. "I think they're a little ahead of themselves," he says.
He's waiting for inevitable price dips before he buys more. But Vroom also says this is no time to sell. "It's clearly early on in the cycle," he says.
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