Long Chip Stocks - And Getting Longer

I have traded the semiconductors over the years.  It is one of my favorite groups since the swings can be so wide.

The SOX is down 57% from its high in this bull market.  It is within 10% of the decade lows.  It is 22% away from the 1998 low and 40% from the 1996 low.

This is a graph of the ProShares Ultra Semiconductor ETF, which tracks the daily moves of the Dow Jones US Semiconductor index by 2x.  It is down 82% from its highs.

click to enlarge

I track 42 semiconductor and equipment companies.  Fifteen are currently trading at their lowest levels in a decade.  Seventeen are trading below book value.  Twenty-two are trading below their book value lows of 2002.  The median stock is trading 14% below its decade lows while the median stock is within 3% of its book value low.  The median price to book is 1.1x.

Thirty-three have net cash on the balance sheet and 36 generated free cash flow over the prior 12 months.  Of those that have net cash on their balance sheets, the average net cash to market cap is 33% and the median is 27%.

I am long semiconductors.  I was waaaaaay too early in my initial purchase.  It was a horrible trade and demonstrates why you should not do what I do.  Heck, I did not do what I usually do as I violated my primary principal when trading the group - buy when the stocks are dirt cheap.  They were not dirt cheap.

But they are getting dirt cheap.

I will get much, much longer the chips some time in the future.

Comments

[Toro:]

Actually, I am not getting longer. I am waiting to get longer.

2008 Oct 17 12:01 PM

[Young Bull:]

Great article. Any specific companies you recomend watching? Are you planning a followup article?

2008 Oct 17 03:19 PM

[drone:]

Annonymity is a problem. Why should we believe a guy called Toro? Why jump on Toro's bandwagon?

Who are you Toro? Step up or get lost.

2008 Oct 18 04:25 PM

[basehitz:]

I like your idea. I was patient but also started buying early on some. On the next swoon, which I expect will be this week, I was looking at adding AMAT and WFR, both of which seem ridiculously priced. But this 2x ETF given the savage selling in the space, might be even better. Overall, Ido not think we are close to out of the woods, especially the US. So international plays benefit from wherever the growth is. And while slowing demand for tech is now seen, to me it's only a pause. I may delay buying the next PC, cell phone, etc., but it's only a delay. That makes the coming rebound even more powerful as deferred spending kicks in.

2008 Oct 19 04:24 PM

[Young Bull:]

Articles on here are meant to be ideas not followed blindly. You have to do your own research and draw your own conclusions, but this place is a great place for getting starting points for your next tarde.

2008 Oct 20 02:07 AM