Semiconductor stocks to buy amid a computer chip shortage for electric vehicles (EV), smartphones and other technology products number more than might be expected.
The semiconductor stocks to buy during the current computer chip shortage operate in a cyclical industry that requires investors to buy and sell their shares astutely to profit. Now may be a good time to purchase semiconductor stocks, but investors should monitor their performance and the industry’s current cycle to avoid holding them during periods when they inevitably pull back.
BoA Global Research recommended four semiconductor stocks to buy, led by Applied Materials, Inc. (NASDAQ: AMAT), a Santa Clara, California-based provider of materials engineering for computer chips and advanced displays. The three other industry stocks recommended by BoA Global Research are KLA Corp. (NASDAQ:KLAC), a semiconductor capital equipment company in Milpitas, California; Lam Research Corporation (NASDAQ:LRCX), a Fremont, California-based provider of wafer fabrication equipment and services to help chipmakers build smaller and faster electronic devices; and Teradyne, Inc. (NASDAQ:TER), a North Reading, Massachusetts-based maker of automatic test equipment.
Multiple regions of the world, including the United States, the United Kingdom, Japan and China, plan to expand semiconductor insourcing to boost longer-term self-sufficiency, according to BoA Global Research. The insourcing benefits could take time to be realized but underscore the case for boosting the valuation of the investment firm’s recommended semiconductor stocks to 23x-25x price-to-earnings (P/E) multiples from 20x P/E.
Semiconductor Stocks to Buy During a Computer Chip Shortfall Include Asian Companies
An appealing Asian stock to buy is Taiwan Semiconductor Manufacturing (NYSE:TSM), a giant semiconductor foundry in Hsinchu, Taiwan. The company offered 281 distinct process technologies and manufactured 11,617 products for 510 customers in 2020 by providing advanced, specialty and technology services. It is the first foundry to provide 5-nanometer production capabilities to offer what company officials call the world’s most advanced semiconductor process technology.
Chart courtesy of www.stockcharts.com
A second Taiwanese semiconductor manufacturer, Samsung Electronics (OTC:SSNLF and KRX:005930), can be leveraged by U.S. investors who purchase funds such as WCM Focused International Growth (WCMRX), T. Rowe Price New Era (PRASX) and iShares PHLX Semiconductor ETF (SOXX). Samsung Electronics is a diversified electronics manufacturer that offers exposure to the growth of smartphones and televisions, among other technology-rich products.
Chart courtesy of www.stockcharts.com
Chart courtesy of www.stockcharts.com
Chip Shortage Likely Will Hold Through Mid-Year to Fuel Semiconductor Stocks to Buy
“The semiconductor shortage appears likely to continue through at least mid-year,” said Bob Carlson, chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets. “But investors need to be cautious. There are reports that customers are increasing orders and manufacturers are increasing production to the point that there could be a glut later in 2021 or early 2022.
“Two of my favorite mutual funds have benefited from the shortage in semiconductors by owning the leading manufacturers: Taiwan Semiconductor Manufacturing and Samsung Electronics,” said Carlson, who also leads the Retirement Watch investment newsletter.
Retirement Watch readers own sizeable positions in Taiwan Semiconductor Manufacturing (NYSE:TSM) and Samsung Electronics (KRX:005930) through WCM Focused International Growth (WCMRX) and T. Rowe Price New Era (PRASX). These funds are a good way to invest in this opportunity, because the fund analysts are in close touch with the companies.
“They’ll monitor developments in demand and supply and also are prepared to reduce positions if valuations become stretched,” Carlson continued.
Taiwanese Semiconductor Stocks to Buy Can Be Acquired Indirectly Through Funds
Plus, Samsung Electronics is traded on the Korean Stock Exchange, not any of the U.S. stock exchanges, so it is easier for Americans to invest in the company through funds rather than the stock itself, Carlson counseled.
A straightforward and classic way to invest in the opportunity is by owning the Philadelphia Exchange Semiconductor Index through the exchange-traded fund (ETF) PHLX Semiconductor Index (SOX), Carlson conveyed. Another way to invest is by owning an index of Taiwanese stocks, in which Taiwan Semiconductor Manufacturing is the largest position, through iShares MSCI Taiwan (EWT). TSM is 22% of the ETF and information technology composes 61% of the fund.
Chart courtesy of www.stockcharts.com
Semiconductor Stocks to Buy Include Intel and Qualcomm
Dividend-paying semiconductor stocks to buy feature Santa Clara, California-based technology company Intel Corp. (NASDAQ:INTC) and San Diego-based Qualcomm Inc. (NASDAQ:QCOM), a provider of intellectual property, semiconductors, software and services for wireless technology.
The semiconductor sector has achieved a” big move higher” of late, said Jim Woods, editor of Successful Investing, Intelligence Report and Bullseye Stock Trader. The benchmark exchange-traded fund (ETF) in the space is the iShares PHLX Semiconductor ETF (SOXX). This fund is up some 28% over the past three months.
“One big reason why is that demand for semiconductor chips has soared with the pandemic work-from-home wave, as well as demand for chips to run everything from smart cars to smart appliances to cell phones,” Woods said. “In fact, the shortage of chips now has even garnered the attention of the White House, as President Biden is expected to sign an executive order in the coming weeks to address a shortage of semiconductor chips used by U.S. industries.”
Columnist and Author Paul Dykewicz meets with stock picker Jim Woods before COVID-19.
Semiconductor Stocks to Buy Will Be Aided by New Presidential Order
Such a presidential order would be a reversal of the Trump-era trade policies on Chinese semiconductor companies, Woods continued. It also will be bullish for the chip sector, as new policies will mean more chip sales across the industry, he added.
To take advantage of this situation, Woods recommends Taiwan Semiconductor Manufacturing in the Tactical Trends Portfolio of his Intelligence Report investment newsletter.
“What I love about TSM is that the company is an earnings growth powerhouse, with earnings per share (EPS) growth over the past several years that has outpaced about 90% of all stocks in the market,” Woods said. “Moreover, the share price performance of TSM over the past 52 weeks has been most impressive, with a gain of 143%, which also has outpaced nearly 90% of all publicly traded stocks.”
Kramer Identifies Favorite Semiconductor Stocks to Buy
Semiconductors are a tough investment, since they are cyclical like commodities, said Hilary Kramer, who hosts the nationally aired “Millionaire Maker” radio program and heads the GameChangers and Value Authority advisory services. Unlike oil or coal, chips tend to get 50% cheaper every 18-24 months, she added.
“Time the cycle flawlessly and you can make a lot of money,” Kramer said. “Miss one beat and it can take years to recover from the losses. Right now, the chips are hot because global car demand ramped up before the supply chains were ready. That’s already priced into the stocks, so if you still want to chase this theme, you’re going to have to dig in.”
Normally, companies that sell to the chip makers would be investment candidates, but none of the big players in the silicon wafer market are listed U.S. stocks, Kramer opined. That situation poses a challenge, especially if the White House is serious about bringing more chip production back to North America to prevent future shortages, she added.
As a result, the management of Samsung Electronics Co. Ltd. is weighing whether to build a $17 billion plant in Austin, Texas, as an onshore supply hub for partners like Tesla Inc. (NASDAQ:TSLA) and NVIDIA (NASDAQ:NVDA), Kramer commented.
Intel Corp. (NASDAQ:INTC) makes its processors in the United States, but Kramer said she would love to see some entrepreneurs step up to supply those plants with domestic wafers. Until then, the best fit from an investment point of view would be to buy U.S.-listed chip assembly companies that operate in Asia, but Wall Street already has caught onto Flex Ltd. (NASDAQ:FLEX) and Kulicke & Soffa Industries Inc. (NASDAQ:KLIC), she added.
“So, if you can’t move farther up the supply chain, you need to get selective and pick the chip makers exposed to the biggest market opportunities,” Kramer said. “My shortlist: INTC for its foresight in locking down chip-based autonomous driving systems by buying Mobileye back in 2017 and Qualcomm Inc. (NASDAQ:QCOM) as the frontrunner in 5G. My subscribers made money on the Mobileye acquisition, but I still miss the company. Now INTC carries the banner. As for QCOM, that dividend can only go up from here. Buy both stocks and tell me if you aren’t happy in five years.”
COVID-19 Has Not Hurt Demand for Semiconductor Stocks to Buy
COVID-19 became the leading cause of death in America in January 2021 by killing more than 100,000 people to account for the largest loss of life for any month since the virus began to spread in the United States early in 2020, according to Johns Hopkins University. Approval by the Food and Drug Administration (FDA) of the first COVID-19 vaccines is boosting optimism as high-priority people receive injections and offer the potential for a semblance of normalcy later this year if the virus can be contained.
U.S. COVID-19 cases have hit a heart-wrenching 27,753,823, while subsequent deaths have felled 487,927, as a huge part of 109,492,997 cases and 2,418,543 deaths worldwide, as of Feb. 16, Johns Hopkins University reported. America has the disturbing distinction as the country with the most cases and deaths in the world.
Semiconductor stocks to buy offer investors a chance to take a plunge into a cyclical industry that currently is finding hefty demand amid a computer chip shortage. Even conservative investment professionals such as a pension fund chairman expect the imbalance in favor of semiconductor manufacturers to remain until at least mid-year to provide a window of opportunity for those willing to join a buying spree already in progress.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.