Semiconductor stocks have soared to record highs in 2018, but still may be a bargain, according to MarketWatch. In addition to growing demand for chips, another potential boost to these stocks may be M&A activity, with 19 potential buyout targets being recently mentioned by Barron's. "I do think there's a strong fundamental story for the semiconductor sector as a whole," as Gina Sanchez, CEO of Chantico Global, told CNBC, citing forecasts of strong demand from industries such as autos and wireless communications.

Stocks to Watch

The consensus 2018 estimates for the PHLX Semiconductor Index stocks project sales growth per share of 10.6%, EPS growth of 18.1%, and free cash flow growth per share of 31.1%. By comparison, the respective figures for the S&P 500 Index (SPX) are 6.3%, 18.6%, and 19.9%.

Among the 30 stocks in the PHLX Semiconductor Index (SOX) that merit particular attention are these five, based on valuation and recent sales growth: Micron Technology Inc. (MU), MKS Instruments Inc. (MKSI), Analog Devices Inc. (ADI), Skyworks Solutions Inc. (SWKS) and ON Semiconductor Corp. (ON). All have forward price/earnings ratios at or below the average for the index, and sales growth rates for the past 12 months that ranged from 18% to 57%, per MarketWatch.

All five stocks mentioned above also are potential takeover targets, according to analysis by RBC Capital cited by Barron's. While Micron is the biggest fish to swallow, at a market cap of over $50 billion, both ON Semiconductor and MKS Instruments are more digestible, at under $10 billion each, per Barron's, which notes that Analog Devices is over $30 billion and Skyworks is just under $20 billion. 

To be sure, not everyone is optimistic about semiconductor stocks. Some market watchers point out that stocks like Micron are rising even as analysts forecast falling revenue and profits for the company by 2020. (See also: Why Micron's Stock Bulls May Be Wrong.)

Soaring Prices, Falling Valuations

In morning trading on March 9, the PHLX Semiconductor Index hit a new all-time high of 1,429.55. That put the index up by 14.1% for the year-to-date, by 48.9% from its most recent low close on April 13, 2017, and by 45.8% since the close on March 9, 2017, per Yahoo Finance. The index is trading at a forward P/E of 16.1, down from 17.3 in November, and less than the current forward P/E of 17 for the S&P 500 Index (SPX), per analysis by FactSet Research Systems Inc., as cited by MarketWatch.

Cheap Play on Technology

Semiconductor stocks are, in general, "an inexpensive way to to play a lot of the best secular trends in technology," according to technology fund manager Paul Wick. Micron and Intel (INTC) were among his top five picks in January. (For more, see also: 5 Stocks To Ride The Hottest Tech Trends: Wick.)

Matt Maley, equity strategist at Miller Tabak, told CNBC that Intel "finally starting to play catch-up." He added, "You think of this as a big, bulky company that isn't one of those sexy stocks that it was in the 1990s, but it has a lot of potential on a technical basis."