Semiconductor stocks caught a bid Friday after industry bellwether Broadcom Inc. (AVGO) reported better-than-expected earnings and reiterated 2019 full-year revenue guidance. The company posted fiscal first quarter earnings per share (EPS) of $5.55, topping analysts' expectations of $5.32 per share. Despite the ongoing U.S./China trade war and slowing global smartphone sales, Broadcom still forecasts 2019 revenues of $24.5 billion.
CEO Hock Tan's comments that the company expects its semiconductor business to resume growth in the second half of 2019 also buoyed investors. "We expect our semiconductor business to bottom in the second fiscal quarter driven almost entirely by the seasonal drop in Wireless. But looking to H2, we are confident the semiconductor business will resume very meaningful growth," Tan said in the earnings conference call, reported by MarketWatch.
Analysts remained upbeat after Broadcom announced its results. MKM Partners maintained its "buy" rating on the stock and lifted its price target from $280 to $310. "We continue to view AVGO shares as attractively valued with solid growth prospects and continued improvement in margin and cash flow metrics," MKM equity research analyst Ruben Roy wrote in a client research note, per Bezinga.
Those looking for a follow-through move in the semiconductor sector this week should take a closer look at these three industry leaders that rose on above-average volume in Friday's trading session.
Broadcom Inc. (AVGO)
Broadcom designs, develops and manufactures a range of semiconductor and infrastructure software solutions used in devices such as smartphones, set-top boxes and internet of things (IoT) gadgets. In the past two years, the San Jose-based company acquired Brocade and CA Technologies to bolster its offerings in enterprise storage and mainframe software. Broadcom stock, with a market capitalization of $114.91 billion and issuing an attractive 3.95% dividend yield, is up 14.16% year to date (YTD). Although outperforming the S&P 500 by 1.57% over the same period, the stock has underperformed the semiconductors industry average by 2.06% as of March 18, 2019.
Broadcom shares have trended steadily higher since gapping down 15% on July 12, 2018, when the company announced that it planned to acquire CA Technologies. In more recent price action, the stock jumped over 8% to an all-time high Friday as investors handsomely rewarded the chip giant's fourth quarter earnings and 2019 outlook. Traders who want to play the breakout should consider using a 15-day simple moving average (SMA) as a trailing stop to ride upside momentum and let profits run. Close open positions if the price falls below $280.
Texas Instruments Incorporated (TXN)
Headquartered in Dallas, with a market cap of $103.94 billion, Texas Instruments Incorporated (TXN) designs and sells a variety of semiconductor devices to electronics designers and manufacturers. The company specializes in analog chips used to process real-world signals such as sound and power. It also has a dominant market share position in digital signal processors. The semiconductor maker exceeded analysts' fourth quarter earnings expectations, reporting adjusted EPS of $1.27 versus the Street's projections of $1.23 per share. However, revenue fell slightly over the period as demand eased across the company's markets. As of March 18, 2019, Texas Instruments stock has a YTD return of 18% and pays investors a 2.78% dividend.
The bulls pushed Texas Instruments' share price up more than 3% in Friday's trading session after Broadcom's impressive results. Texas Instruments stock now trades above a period of month-long consolidation and sits just 4.7% below its 52-week high set on June 7, 2018. Momentum traders who take an entry here could use a measured move technique to set a profit target. For example, measure the distance from the late December low to the early February high – then add that amount to the breakout point ($22.46 + $109.49 = $131.95 profit target). Cut losses if the stock closes below Friday's low at $107.99.
Lam Research Corporation (LRCX)
Lam Research Corporation (LRCX) develops and sells equipment used to fabricate semiconductors. The company, founded in 1980, focuses on the plasma etch, thin film deposition and wafer cleaning markets, which are integral in the semiconductor manufacturing process. Some of Lam's key customers include Samsung Electronics Co., Ltd. (005930.KS) and Taiwan Semiconductor Manufacturing Company Limited (TSM).
The Fremont, California-based company has beaten analysts' earnings projections over the past four consecutive quarters and pays a dividend yield of 2.58%. It is also cheap relative to its competitors, with a price-to-earnings ratio (P/E ratio) of 10.9 compared to 16.5 for the industry average. Multinational investment bank Citigroup bumped its price target on the stock Friday from $177 to $215, citing a recent uptick in NAND equipment orders. Lam Research stock has a $27.83 billion market cap and sports a sizeable 33.94% gain this year as of March 18, 2019.
Broadcom's positive earnings and Citi's price target upgrade saw Lam Research stock climb above February's swing high in early Friday trading before closing toward the lower end of its daily range. In another bullish sign, the 50-day SMA recently crossed above the 200-day SMA to form a "golden cross" signal on the chart that indicates a trend reversal to the upside. Traders can use either of the exit methods discussed above – a trailing stop or the measured move technique – to book profits. Consider positioning a stop-loss order at the midway point of Thursday's trading range at $174.71 to protect trading capital.