These 7 semiconductor stocks may be close to a bottom. This chart pattern shows when and how much they might rebound.


Semiconductor stocks have been hit hard since the industry group rose to a record in early January. Analysts at Jefferies see a “peaking” pattern similar to those of 2014-2015 and 2017-2018, and expect excellent performance for some during what they call “mini-upcycles.”

Below is a list of seven semiconductor stocks the analysts, led by Mark Lipacis, believe might be best to own through this cycle.

A pattern to follow

Here are three charts to illustrate these patterns, based on price action for the iShares Semiconductor ETF
SOXX,
+3.70%
,
which tracks the performance of the PHLX Semiconductor Index
SOX,
+3.60%

of 30 stocks.

The first chart runs from the end of 2013 through the end of 2015:


FactSet

You can see the repeat pattern of peaks, pullbacks and rebounds.

Here’s the action for SOXX from the end of 2016 through the end of 2018:


FactSet

Once again, we see the pattern of “repeat peaks” for SOXX.

Now look at a one-year chart for SOXX through the close on Jan. 28:


FactSet

In a note to clients on Jan. 31, Lipacis called the current pattern, with SOXX down 19% from its intraday high at $559 on Jan. 4 through the close at $455 on Jan. 28, another “peaking process.”

His analysis of the previous two times this happened indicates that there are “multiple mini-peaks and troughs” that typically last 45 days. So we may still be at an early stage for the current mini-cycle.

Lipacis went on to write that semiconductor stocks can swing plus or minus 40% during these periods and that “the stocks that do the worst during the mini-downcycles usually do best during the mini-upcycles, which suggests owning” the following seven, “especially after recent weakness.”

Company

Ticker

Price decline – 2022

Decline from 52-week high

Closing price – Jan. 28

52-week high

Date of 52-week high

Nvidia Corp.

NVDA,
+4.78%
-22%

-34%

$228.40

$346.47

11/22/2021

Advanced Micro Devices Inc.

AMD,
+6.75%
-27%

-36%

$105.24

$164.46

11/30/2021

Microchip Technology Inc.

MCHP,
+5.37%
-17%

-20%

$72.22

$90.00

12/28/2021

Marvell Technology Inc.

MRVL,
+4.84%
-24%

-29%

$66.32

$93.85

12/08/2021

Lam Research Corp.

LRCX,
+3.34%
-22%

-23%

$561.14

$731.85

01/04/2022

NXP Semiconductors N.V.

NXPI,
+5.56%
-17%

-21%

$189.45

$239.91

12/07/2021

ON Semiconductor Corp.

ON,
+6.94%
-21%

-25%

$53.76

$71.26

01/04/2022

Sources: Jefferies, FactSet

You can click on the tickers for more about each company.

Then read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Long-term performance: SOXX vs. S&P 500

To be sure, the above suggestion from Jefferies, within what may be a repeat pattern of peaks and troughs for this cycle, would be a tactical trade.

For long-term investors, the performance of SOXX against the S&P 500 Index
SPX,
+1.10%
,
tracked by the SPDR S&P 500 ETF Trust
SPY,
+1.08%
,
has been nothing short of breathtaking. Here’s a three-year total-return chart, with dividends reinvested, through Jan. 28:


FactSet

Now five years:


FactSet

And 10 years:


FactSet

A look ahead: SOXX vs. SPY

One reason for SOXX’s long-term relative outperformance is that the semiconductor industry has been growing sales and earnings more rapidly than the broad market.

Here are expected compound annual growth rates (CAGR) for sales per share (SPS) for SOXX and SPY for the next two and three calendar years, based on consensus estimates among analysts polled by FactSet:

ETF

Two-year expected sales CAGR

Three-year expected sales CAGR

Est. SPS – 2021

Est. SPS – 2022

Est. SPS – 2023

Est. SPS – 2024

iShares Semiconductor ETF

10.3%

10.2%

$78.83

$88.94

$95.88

$105.45

SPDR S&P 500 ETF Trust

6.4%

6.7%

$153.46

$164.59

$173.57

$186.43

Source: FactSet

Here’s the same comparison, based on earnings-per-share estimates:

ETF

Two-year expected EPS CAGR

Three-year expected EPS CAGR

Est. EPS – 2021

Est. EPS – 2022

Est. EPS – 2023

Est. EPS – 2024

iShares Semiconductor ETF

11.5%

10.5%

$22.56

$25.45

$28.03

$30.45

SPDR S&P 500 ETF Trust

9.5%

9.7%

$20.47

$22.34

$24.53

$27.00

Source: FactSet

Don’t miss: 24 software stocks, including Microsoft, expected to rise by double digits over the next year



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