Semiconductor stocks continue to cement their position as one of the best performing industries this year despite uncertainty surrounding the coronavirus recovery and escalating tensions between Washington and Beijing. The group is trading nearly 5% higher in 2020 compared to the S&P 500's 4.64% decline.
Stocks across the industry added to gains Tuesday after Bank of America said that secular and structural growth drivers continue to underpin semiconductor firms, even as tensions mount between the world's two economic superpowers. "Longer-term, we believe semis will play a critical role in the new digital economy which is built on the processing, storing and networking abilities enabled by this very profitable, consolidated and disciplined sector," analyst Vivek Arya said, per CNBC.
Swing traders who wish to play the group's ongoing bullish momentum should add these three leading semiconductor stocks to their watchlist. Below, we take a closer at each firm and explore possible trading opportunities.
Texas Instruments Incorporated (TXN)
Texas Instruments Incorporated (TXN) manufactures and markets semiconductors, focusing on the industrial and automotive markets. The maker of chips used in PCs, communications equipment, and other electronic devices reported first quarter earnings per share (EPS) of $1.24 to deliver a 23% earnings surprise. Analysts credited the bottom-line beat to customers stockpiling components to avoid potential supply disruptions caused by the COVID-19 pandemic. Although Texas Instruments stock has fallen 3% year to date (YTD), it has risen 11.81% over the past month as of June 3, 2020. Investors also receive a 3.05% dividend yield.
After dipping below the psychological $100 level at the height of the March sell-off, the stock has recouped the lion's share of its 30% pandemic dive. Buyers continued the rally Tuesday, with the price closing comfortably above the 200-day simple moving average (SMA) for the first time since late February. Swing traders who enter here should look to book profits near crucial overhead resistance at $132.50 and protect downside with a stop-loss order placed just below the 200-day SMA.
QUALCOMM Incorporated (QCOM)
San Diego-based QUALCOMM Incorporated (QCOM) designs and sells semiconductors used in smartphones, networking, application processing, and global positioning system products. The chip manufacturer sits well positioned for future growth by investing in startups engaged in artificial intelligence (AI), digital health care, and enterprise software. Last month, KeyBanc upgraded the stock from "sector weight" to "overweight," noting that the company may benefit from recent export restrictions placed on Chinese semiconductor manufacturer HiSilicon Technologies Co. Ltd. As of June 3, 2020, QUALCOMM stock has a market capitalization of $95.20 billion, yields 3.26%, and is trading nearly 12% higher over the past month.
The share price finally broke above a month-long period of consolidation yesterday in a move that could trigger further buying interest in the weeks ahead. Those who trade the breakout should consider setting a profit target between $92.50 and $95 – an area that may find resistance from the prominent November and January swing highs. Keep a stop order under this month's low at $79.24 to protect against a sudden reversal.
Qorvo, Inc. (QRVO)
Qorvo, Inc. (QRVO) specializes in chips used to power mobile devices, networking equipment, military applications, and Internet of Things (IoT) technology. The Greensboro, North Carolina-based chip giant, which has exceeded Wall Street expectation for the past 14 consecutive quarters, posted first quarter EPS of $1.57, up from $1.22 in the year-ago quarter, amid surging demand from 5G infrastructure and handsets, along with strength in its IoT and defense businesses. Trading at $109.68, the stock has returned 17.75% YTD, outpacing the semiconductor industry average over the same period by nearly 7% as of June 3, 2020.
Qorvo shares have trended upward since late March, with only minor pullbacks to the dotted blue trendline. Gains accelerated from a loosely constructed ascending triangle Tuesday, which may give rise to a test of the double top pattern around $118. Those who position for such a move should cut losses if the stock fails to hold above the top trendline of the triangle, as this invalidates the breakout trade setup.