(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of SWKS.)
Semiconductors may be off their recent lows, but many of the stocks are still trading at cheap valuations. The iShares Semiconductor ETF (SOXX) is up by nearly 7.5 percent so far in 2018, but it had been up by almost 11 percent at the end of January. The broader market sell-off from January 26 through February 8 caused the ETF to fall by nearly 12 percent.
But the sharp declines in the broader market created opportunities as well, as stocks like Broadcom Ltd. (AVGO), Skyworks Solutions Inc. (SWKS), and Cypress Semiconductor Inc. (CY) are trading at historically low valuations, while the technicals suggest each could be set to rebound back to the previous highs or even higher.
The chart shows that shares of Skyworks, Broadcom, and Cypress are all trading at the lower end of their historical one-year forward earnings estimates.
Shares of Broadcom are trading at just 12.3 times 2019 earnings estimates of $20.75, while Skyworks trades at only 12 times 2019 earnings estimates of $8.21. In November 2017, Broadcom was trading at about 14.50 times estimates, while Skyworks was trading at 13.8 times one year forward estimates.
Cypress is no different, trading at 11.3 times 2019 estimates of $1.42. By comparison, Cypress was trading at roughly 14 times in November 2017. (See also: Is Someone Manipulating the VIX?)
Fundamental Chart data by YCharts
Shares of Skyworks continue to rally sharply from the lows off of $94.50 and appear headed back towards previous highs around $112. Should the stock manage to rise above $112, the next stop is likely $117, a rise of about of about 9 percent from its current price around $107.50.
Broadcom is approaching a breakout, and should the price rise above $259, the stock could continue to rise on toward its previous highs of roughly $285. That's an increase of approximately 11 percent from its current price around $254.
Cypress shares are also attempting to rally. The stock is just breaking out and rising above resistance at $16.25. The breakout could propel shares higher to the next resistance level, which comes along the top of the previous highs, around $18.50. That's a rise of roughly 9.5 percent from its current price of approximately $16.90.
The semiconductor group has made a substantial attempt at rallying off the lows. With valuations at historically low levels and a bullish technical setup, the bull run that started in 2017 is likely not finished for 2018.
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.