(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of SWKS.)
Chips stocks are about 5% off their 2018 highs based on the iShares Semiconductor ETF (SOXX). However, some of these stocks are down by more substantial amounts, as investors worry about deteriorating fundamentals and rising trade tensions between the U.S. and China. Now, technical analysis suggests some of these stocks may be oversold and are due for a short-term bounce.
Shares of Applied Materials Inc. (AMAT) and Lam Research Corp. (LRCX) are more than 33% off their highs. Meanwhile, stocks such as Skyworks Solutions Inc. (SWKS) and Texas Instruments Inc. (TXN) are down by more than 10%. (For more, see also: Chip Sector Correction Looming Due to Inventory: CLSA.)
Lam Research's stock has also hit oversold conditions; its relative strength index (RSI) dropped below 30 in early September too. Should the stock rise above technical resistance at $157.50, shares may advance as high as $168.60, a gain of more than 10% from its current price of around $153.25. (For more, see also: 5 Chip Stocks Facing Steep Declines.)
Skyworks has dropped by more than 23% from its 2018 high. Now, shares may rebound in the coming weeks by more than 8%. The relative strength index also fell to 30 reaching oversold conditions on September 12. The last time the RSI fell to such a depressed level was in early May, resulting in the stock rebounding by about 18%. As a result, the stock may now rise to technical resistance at $95.50, from its current price of around $88.75.
Shares of Texas Instruments have also hit oversold conditions. Now shares are attempting to rebound above technical resistance at $107.60. Should that happen, the shares could climb as high as $116, a gain of about 8% from its current price of around $107.40
Applied Materials has fallen the most, and the recovery in the stock seems the most challenged. Shares may only rise by as much as 5% from its current price, to roughly $41, from its current price of around $39.
All four of these stocks are long overdue for a short-term bounce. A longer-term rise seems less than certain at this point.
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.