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Kevin Grewal is the founder, editor and publisher of ETF Tutor as well as serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent... More
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  • Semiconductor ETFs To Shine 1 comment
    Feb 2, 2010 9:29 AM | about stocks: TXN, PSI, MU, MXIM, SOXX, BRCM, AMAT, SMH, INTC
    By Kevin Grewal
    As consumer confidence strengthens, global economies grow and capital spending in corporate America is expected to increase, the semiconductor industry and its exchange traded funds (ETFs) are likely to reap the benefits.
    According to the latest data from the Conference Board, its index of consumer confidence increased for the third month in a row to its highest level in two years. This indicates that consumers are starting to see the light at the end of the tunnel and are hopeful that the nation’s economy will stabilize and show signs of growth. 
    As this trend continues to emerge, consumers will likely increase spending which was recently seen in the personal computer market. According to research firm IDC, shipments of personal computers to the United States by 24% in the past quarter and is expected to continue to show signs of prosperity. This jump in personal computer demand will likely benefit the semiconductor industry.
    Additionally, increases in capital spending by domestic corporations are likely to add to the sectors appeal.   According to the Philadelphia Federal Reserve Bank’s monthly index of manufacturing, business are expected to increase manufacturing capital spending. Similar trends have been seen in New York banks, where the New York capital expenditure index jumped to a 33.33 last month, rising to the highest level in over 30 months. 
    This trend is likely to continue as the Institute for Supply Chain Management (ISM) index rose to its highest level August 2004 and a sixth straight month of expansion.   In fact, Texas Instruments (NASDAQ:TXN), the second largest U.S. chipmaker, recently announced that it will spend nearly $1 billion to expand operations to keep up with increased demand. 
    Overall, increased capital spending is beneficial to chip makers and some suggest that capital expenditures will rise by over 14% in the coming year.   From a global perspective, increases in demand by developing nations, in particularly China, is expected to further boost semiconductors.  
    Some ETFs to consider are the following:
    ·         PowerShares Dynamic Semiconductors (NYSEARCA:PSI), which holds Micron Technology (NASDAQ:MU) and Maxim Integrated Products (NASDAQ:MXIM) in its top holdings. PSI closed at $12.18 on Monday
    ·         iShares S&P GSTI Semiconductor(IGW), which holds Applied Materials (NASDAQ:AMAT) and Broadcom Corporation (NASDAQ:BRCM) in its top holdings. IGW closed at $44.44 on Monday.
    ·         Semiconductors HOLDRs (NYSEARCA:SMH), which boast Intel (NASDAQ:INTC) and Texas Instruments as its top holdings. SMH closed at $25.30 on Monday.
    Although there are numerous positive forces that are likely to boost chip-makers, a hiccup in the expected economic recovery and other risks that could cause these equities to decline in value.   A good to way to protect against these risks is through the use and implementation if an exit strategy which triggers price points at which an upward trend could potentially be coming to an end. 
    According to the latest data at www.SmartStops.net, the price points for the aforementioned ETFs are: PSI at $11.57; IGW at $42.83; SMH at $24.45. These price points fluctuate on a daily basis and reflect changes in market conditions. Updated data can be found at www.SmartStops.net.


    Disclosure: No Positions
    Stocks: TXN, PSI, MU, MXIM, SOXX, BRCM, AMAT, SMH, INTC
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  • Mary LaRue
    , contributor
    Comments (32) | Send Message
     
    While I am aware that semiconductors will perform well this year (not nearly as well as data storage but almost), SMH concerns me. It is oversold and I am puzzled as to why this one hasn't been snatched by investors during the recent sell off.
    I am also aware of the recent efforts amongst the "big money" to tank the best sectors, only to later come along and buy these promising companies at much cheaper prices. If you will notice, many of the strongest stocks to own (BUCY, FCX, WDC, JPM, STT to name a few) have tanked the most, and I think they will rebound the hardest when we see what I think will be a monster rally after a second minimal sell off this year. At that point. SMH should fly.
    13 Feb 2010, 12:57 PM Reply Like
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