While large-cap semiconductor stocks, such as industry giant
Intel Corp. (
), have struggled to maintain a positive bias during the past year,
small-cap and mid-cap chip firms are performing quite well.
Overall, the Semiconductor HOLDRS Trust (
) has added more than 25% during the past 52 weeks, with the
exchange-traded fund (
) rising roughly 4% year-to-date. By comparison, INTC's performance
has been flat during the same time frames, with the stock down
about 0.4% since the start of 2011, and up 0.53% in the past
Despite this disparity in performance, INTC and its fellow
large-cap stocks have garnered the bulk of the sector's bullish
sentiment. For instance, only about 53% of the 1,169 analysts
covering SMH stocks rate them a "buy" or better, compared to nearly
60% of the 42 brokerage firms following INTC. Additionally, SMH's
short-to-float ratio arrives at a whopping 51%, versus less than 1%
for Intel. Given the sector's overall strength, and Intel's
relative weakness, there could be plenty of bullish opportunities
among the smaller semiconductor stocks.
With a market capitalization of roughly $8.19 billion, Xilinx
) is large by mid-cap standards, but is dwarfed by Intel's market
capitalization -- a whopping $116.78 billion. However, its smaller
size has allowed XLNX to be considerably more nimble, with the
company posting a Street-beating 42% jump in third-quarter earnings
after the close on Jan. 19. The better-than-expected report
extended the company's fiscal winning streak, with XLNX having
bested the consensus estimate in each of the prior four reporting
XLNX is no slouch in terms of price action, either. During the
past 52 weeks, the shares have rallied more than 24%, with the
stock adding nearly 8% since the start of 2011. The equity has also
broken out to a series of multi-year highs, bolstered by support at
its 10-day and 20-day moving averages. XLNX is currently
consolidating those gains just above its 10-day trendline, as it
weathers the recent spike in market volatility.
Despite this strong price action, investors have remained
stubbornly bearish on the security. Among options traders, the
stock's Schaeffer's put/call open interest ratio (SOIR) arrives at
1.37, as puts outnumber calls among near-term options. This ratio
also arrives just one percentage point shy of an annual peak,
pointing toward an extreme in bearish sentiment.
What's more, put buying is growing in popularity on the
International Securities Exchange (ISE) and Chicago Board Options
). During the prior two weeks, 1.38 XLNX puts were bought to open
for every one call purchased, resulting in a 10-day ISE/CBOE
put/call volume ratio of 1.38. This ratio ranks above 60% of all
those taken in the past year, meaning that options traders have
rarely snapped up puts over calls at a faster pace in the past
Analysts are also betting against XLNX, as 16 of the 24
brokerage firms following the shares rate them a "hold" or worse.
The firm's consensus 12-month price target of $30.28, as reported
, also suggests a lack of confidence from the analyst community, as
XLNX closed at $31.26 on Thursday. As such, any upgrades or
price-target increases could provide additional buying
Finally, short interest rose by more than 13% during the prior
month, resulting in about 30.7 million XLNX shares sold short. With
a short-to-float ratio of 11.87%, the equity has plenty of fuel for
a potential short-covering rally as it extends its current uptrend.
Traders looking to take advantage of this strong price action
should consider the stock's March 31 call.
Sporting a market capitalization of roughly $11.78 billion,
Altera Corp. (ALTR) is carrying a few more pounds around the middle
than Xilinx. After the close on Tuesday, Jan. 25, Altera is
expected to post a fourth-quarter profit of 71 cents per share,
more than doubling last year's earnings of 34 cents per share for
the same period. Historically, the company has bested Wall Street's
expectations in each of the prior four reporting periods, with an
average upside surprise of roughly 14.5%.
Technically, ALTR is by far the best performing of today's focus
stocks, with the shares soaring nearly 70% during the past year.
Additionally, the equity has extended its strong price action into
2011, gaining almost 6% since the start of the year. The stock's
10-week moving average has provided a helping hand since September
2010, with ALTR trending steadily higher along this
intermediate-term trendline during this time frame. What's more,
the stock's recent pullback to this moving average could mark an
excellent entry point for bullish investors ahead of the company's
On the sentiment front, ALTR bears are in full retreat ahead of
the company's turn in the earnings spotlight. Although puts are
quite popular, with the equity's SOIR of 1.46 ranking above 63% of
all those taken during the past year, ALTR's ISE/CBOE 10-day
call/put volume ratio has ballooned to 8.02, meaning that more than
eight calls have been bought to open for every one put purchased in
the prior two weeks. This ratio also ranks above 98% of all those
taken in the past year.
While additional attention to ALTR calls could be a sign of
buying strength, contrarians will want to be alert to a bullish
frenzy ahead of the company's earnings report, as it could be a
sign that speculators have raised the bar.
There is also room for potential upgrades on ALTR. According to
, 14 of the 24 analysts following the shares still rate them a
"hold" or worse. Upgrades from this group of holdouts could bring
more buyers to the table. Traders looking to take advantage of an
extended rally by the equity should consider a March 35 call.
Linear Technology Corp.
One final semiconductor stock to consider is Linear Technology
Corp. (LLTC). While the company's market cap of $7.83 billion ranks
it below the rest of today's focus stocks, Linear proved that it
could be more nimble than most of its competitors earlier this
week. Specifically, on Tuesday, Jan. 18, the company announced that
its second-quarter net income nearly doubled to $143.7 million, or
62 cents per share. Revenue rose over 50% to $383.6 million. The
results easily topped the consensus estimate for earnings of 58
cents per share on revenue of $379.7 million.
Technically speaking, the stock is on solid footing, having
rallied more than 22% during the prior 52 weeks. The shares have
run into some turmoil in 2011, gaining a mere 0.8% year-to-date,
but LLTC still maintains key support at its rising 10-week and
20-week moving averages. Currently, the shares are consolidating
into the former of these intermediate-term trendlines, creating a
bit of a trading range between the $34 and $35 levels. However,
with the stock's 10-week moving average pushing into the region,
LLTC could be on the verge of another leg higher in its longer-term
Checking in with investor sentiment, options traders remain
quite bearish toward LLTC, with the stock's SOIR of 1.03 arriving
above 85% of all those taken in the past year. Furthermore, the
security's 10-day ISE/CBOE put/call volume ratio of 1.06 ranks in
the 73rd percentile of its annual range.
Finally, short interest accounts for a respectable 6.07% of the
stock's total float, providing ample fuel for a potential
short-covering rally that could amplify any breakout rally for
LLTC. Given this data, investors might want to consider a May 32
call to take advantage of a potential unwinding of this
The winter 2011 issue of
magazine is now available here.
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