(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
After a rough finish to 2017, chipmaker stocks have come back to life as measured by the iShares PHLX Semiconductor ETF (SOXX), which has jumped by nearly 5.5%, while the S&P 500 has climbed by 4.2%. The SOXX ETF looks to be nearing a technical breakout, and that could mean big moves lie ahead for companies like Microchip Technology Inc. (MCHP), Maxim Integrated Products Inc. (MXIM) and Applied Materials Inc. (AMAT).
The chart below shows how the ETF is nearing its previous peak around $182, and with the ETF trading at roughly $179, a breakout is very near. Should the ETF rise above $182, it would signal a breakout and that would benefit many names in the group. (For more, see also: 2018 Will Be Mixed for Chipmakers: Morgan Stanley.)
Applied Materials has been in a trading channel since the start of 2016. It appears it could continue to stay that way for some time. One can see in the chart below that the stock rose above the upper range of the channel, eventually reverting. With shares trading around $53.50, a rise back towards the top end of the trading range and the previous high around $60 seems possible, giving the stock the potential to increase by about 12%.
Maxim is also nearing a significant breakout that could send shares on towards all-time highs. The chart below shows how close it is to the breakout, and with a relative strength index (RSI) only in the mid-60s, there is still plenty of room for the stock to climb before signaling that the stock is overbought. The last two breakouts, which are circled in green, led to a rally of about 13% each time. A similar rally would take shares to about $63.
Microchip traded in a pretty tight channel since 2016 as well, and like the other stocks could be on the verge of a breakout. The chart below shows every time the shares of Microchip peaked, proceeding to rally by about 11%. The stock last peaked around $95, and should a similar rally occur again, it would mean the stock would peak at a price of roughly $107, a gain of 14% from its current price around $93.5.
All of these names seem well positioned to continue to move higher as the year progresses, but with earnings season around the corner, everything could change at a moment's notice.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.