(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of SWKS.)
The chipmaker stocks have fallen by 10% since the beginning of June as measured by the iShares PHLX Semiconductor ETF (SOXX). But now, signs are emerging the group may be poised for a significant rebound in the coming weeks, perhaps by as much as 20% in some cases.
Stocks such as ON Semiconductor Corp. (ON), Nvidia Corp. (NVDA), Qorvo Inc. (QRVO), Skyworks Solutions Inc. (SWKS), Analog Devices Inc. (ADI) and Xilinx, Inc. (XLNX) are seven stocks that have been on a rollercoaster ride in 2018, between trade tensions and in some cases concerns around sales of wireless devices. But two stocks, ON Semiconductor and Nvidia, may be poised to rebound by the most significant amounts.
The SOXX ETF has refilled a gap created at $176 back at the beginning of May. That level of technical support has now been tested on three occasions and suggest that a floor may be in place. Additionally, the relative strength index (RSI) has reached oversold conditions below 30 and is now trending higher, despite an ETF that has been trending sideways, a bullish divergence, which suggests the ETF may be ready to turn higher. Should that happen, the ETF could rise back to resistance at $182.3, a rise of about 4%. (For more, see also: Top 5 Semiconductor ETFS as of June 2018.)
ON Semiconductor Corp.
ON Semiconductor is sitting on a technical support level of $21.85, which could serve as a price for the start of a rebound. The last time the stock hit that price in early May, shares went on to rally by 21.6%. The chart shows the volume levels have been steadily declining in recent days, which suggest selling pressure may not be easing. Additionally, the RSI is also attempting to turn higher as well. Should ON rebound, it is likely to climb back to resistance at $26.50, a rise of almost 20% from its current price of $22.15.
Nvidia's stock is also at a vital support price around $240, and like ON, volume levels have been steadily declining to suggest selling pressure is fading. Additionally, the RSI has started trending higher as well. Should Nvidia rebound, it is likely to climb back to resistance at $260, a rise of about 10%. (For more, see also: NVIDIA Reports Earnings Setting an All-Time High.)
Both ON and Nvidia may have differing longer-term trends, with Nvidia expected to have exceptional revenue and earnings growth in 2018, of greater than 34%. Meanwhile, ON may find its road more challenging with revenue growth forecast at 3%, making sustaining earnings growth more difficult in the future.
In either case, the group appears poised to bounce in the coming weeks. Where the stocks go over the longer term may just come down the business outlook for the companies or the latest round of geopolitical concerns.
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.