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Semiconductors Set to Lead 2nd Half - ISIL, TXN, CY, CAVM

|Includes:CAVM, CY, Intersil Corporation (ISIL), TXN

Though the second half of 2009 certainly didn’t get started on the right foot, I’ve found a handful of groups I think have emerged as leaders that are strong enough to resist a nasty downtrend. And, if for some reason the market recovers, these groups are sexy enough (i.e. not ’staples’) that they’ll actually benefit from a rising tide.

I detailed my top three industry picks back in the June 30th newsletter. However, one of the areas I didn’t get to highlight then was semiconductor stocks - today’s focal point.

I’ll get to the underlying fundamental reasons why I like the group as a whole. First though, I just want to take a look at a chart of the S&P 1500 Semiconductor Index to show you what I’m so stoked about.

Two things immediately stick out for me.

The first one is minor… the semiconductor industry’s stocks were one of the very few to make gains last week. That kind of relative strength is important.

The second factoid that got my attention is how these stocks still have so much room to recover from last year’s tumble. Unlike so many other groups, there’s some meat left on this bone.

Now frankly, I’m not wild about the shape of the recent chart. It seems like we’re making lower highs, and sorta’ lower lows. If you zoom into a daily chart though, it looks a little more like range-trading. I could also use a little more volume… personal preference.

Translation? I’m basically ok with the chart as long as 155 holds up as support. If not, I’ll have to rethink my timing. Conversely, if 183 breaks as resistance, I’m going all in. In the meantime, I’ll tip-toe in based on the relative strength and the fundamentals for some of my favorite names in the group.

And speaking of….

There are just too many semiconductor names to review them all in one shot, so I’ve done my best to look at as many of the popular ones as I can (all market caps). Hopefully I’ve looked at enough to give you a chance to compare and rank a few against the whole industry.

I’ve highlighted (in yellow) some of the data I found interesting, or some of the value hot-spots. I found Intersil (NASDAQ:ISIL) and Texas Instruments (NYSE:TXN) to be solid values, and it seems as if Cypress (NASDAQ:CY) and Cavium (NASDAQ:CAVM) are looking at the most earnings growth.

Granted, these are analyst estimates, so take them with a grain of salt. I don’t think they’re off base though.

Just because data is missing doesn’t mean there’s a problem. The blank spots on the grid just mean the data doesn’t exist. Frankly, those holes have me the most curious, as they may be the best opportunities… and we’d never know.

The other upside to this kind of review is recognizing the likely weakness Atmel and AMD seem to be headed into. Both are major industry players, but both look like they’re going to be radioactive for a while.

So once again, it looks like Intersil (ISIL), Texas Instruments (TXN), Cypress (CY) and Cavium (CAVM) are your best places to start digging into your due diligence process. And remember, the charts are just as important as the fundamentals.

One thing about this list… my grouping is for semiconductor manufacturers, which specifically excludes semiconductor equipment stocks. That’s an important distinction, though the two groups tend to move in tandem (I’ll review the semi equipment stocks at another time.)

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