(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 down by more than 8% from their March highs as measured by the iShares PHLX Semiconductor ETF (SOXX). Some stocks within the ETF are down even more, and the losses may be about to get a whole lot worse based on technical analysis.
Shares of Lam Research Corp. (LRCX), Teradyne Inc. (TER), Applied Materials Inc. (AMAT), Skyworks Solutions Inc. (SWKS) and On Semiconductor Corp. (ON) are already down by more than 20% from their highs earlier this year. Of the five stocks, Applied Materials is down the most by more than 29%. (For more, see also: Chip Stocks May Have Hit Their 2018 Highs.)
Lam Breaking Down
Lam Research is already down by almost 26% and is facing a decline of more than 8% from its current stock price of roughly $170. The technical chart shows the stock falling below an uptrend that has been in place since the spring of 2017. The stock is currently sitting just above its next level of technical support around $168.60. Should the stock fall below that support level shares may fall to roughly $157.50.
The company managed to post better than expected fiscal fourth quarter 2018 results on both the top and bottom lines. But then Lam disappointed investors by guiding the fiscal first quarter for 2019 below expectations. Now analysts have been slashing their forecast for the upcoming quarter and the full year. Analysts have reduced the first quarter's earnings estimates by more than 20% to $3.21, a year-over-year decline of more than 7%. Meanwhile, revenue forecast has dropped by nearly 17% to $2.31 billion, a drop of almost 7% versus last year.
Reducing the Full Year
LRCX EPS Estimates for Current Fiscal Year data by YCharts
Full-year earnings forecasts came down significantly as well, and are now seen falling by more than 12% versus previous estimates for a 2% decline. Revenue forecasts have also been slashed and are seen falling by 5% from previous forecasts calling for revenue to be flat. (For more, see also: 3 Chip Stocks Posting Big Rebounds.)
The group's struggles are hard to miss, and the technical charts suggest shares of each are facing more declines should they fall below their support levels. For the stocks to turn higher they are going to need a catalyst—perhaps Apple can do just that when it presents its new slate of iPhones in September.
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.