The Nasdaq gained for the third consecutive trading day on
Tuesday. The index gained 0.4%, as 84 of its components reached a
52-week high. Overall, the index gained the most among the
benchmark indexes. These are indications that the technology heavy
index has somewhat overcome recent volatility.
Volatility in High Growth Tech Stocks
The technology sector has gained significantly during the first
half of 2014. However, this is not true for all tech stocks.
Declines in high-growth tech stocks had a negative impact on Nasdaq
of late. For instance, shares of
) plunged 9.9% on Apr 25 due to the second-quarter operating loss
forecast. The Nasdaq dropped 1.8% on the same day.
At the beginning of the second quarter of 2014, investors dumped
) on rising concerns about fundamentals.
The share price movement of momentum stocks often lacks
justification. The fundamentals of these stocks do not always
support their lofty valuations. Nevertheless, short-term investors
have found them attractive for their ability to deliver strong
Rise of Semiconductors
The sell-off that started from late March puts the focus back on
value investing. Though most of these stocks have recovered from
the losses made during March and April, interest in older tech
stocks has been renewed.
This is best borne out by the advance of semiconductor stocks.
While the Nasdaq has gained 4.69% this year, the
Technology Select Sector SPDR ETF
) has gained 8%. On the other hand, the
iShares PHLX SOX Semiconductor Sector ETF
) has gained 20.78% during the same period.
SOXX is the largest semiconductor ETF which tracks 31 semiconductor
companies and has $460 million invested in it. The reason for the
popularity of semiconductor stocks is the fact that many of them
are older and proven companies. High levels of demand have led to
encouraging earnings and significant increases in share prices for
the likes of
Micron Technology Inc
The consumer and computing markets remain the most important, but
because of the gradual convergence of functionalities, it is
growing increasingly difficult to identify which devices are
computing and for which type of consumer. Semiconductors are
spurring this change, facilitating the convergence.
Taken together, these factors indicate a positive period for
semiconductor stocks going forward. Below we present three stocks
which possess the potential to grow in such an environment, each of
which also has a good Zacks rank.
Advanced Semiconductor Engineering Inc.
) is an independent provider of semiconductor packaging services
and semiconductor testing services, including front-end engineering
testing, wafer probing and final testing services. The company
offers packaging and testing services separately and on a turnkey
Turnkey services consist of integrated packaging, testing and
direct shipment of semiconductors to end users designated by
customers. The company is able to expand the traditional scope of
turnkey services to offer total semiconductor manufacturing
services to customers.
Advanced Semiconductor Engineering Inc. holds a Zacks Rank #2 (Buy)
and has expected earnings growth of 15.79%. The forward
price-to-earnings Ratios (P/E) for the current financial year (F1)
Integrated Silicon Solution Inc.
) designs, develops and markets high performance memory devices.
These include static random access memory, low and medium density
dynamic random access memory, and nonvolatile memory, as well as
voice recording devices and certain microcontrollers and embedded
Their memory devices are used in networking applications,
telecommunications, data communications, disk drives and other
peripherals, personal computers, office automation, instrumentation
and consumer products.
Currently the company holds a Zacks Rank #2 (Buy) and has expected
earnings growth of 12.9%. It has a P/E (F1) of 20.59.
Avago Technologies Limited
) is a premier designer, developer and global supplier of a broad
range of analog semiconductor devices and digital, mixed-signal and
optoelectronics components and subsystems.
Avago is currently the 9th largest semiconductor company (excluding
memory business) in the world, focusing primarily on products that
are developed from the 3rd and 5th groups in the periodic table of
Apart from a Zacks Rank #1 (Strong Buy), Avago has expected
earnings growth of 25.94%. It has a P/E (F1) of 21.56.
Older tech stocks and semiconductors in particular are offering
better value in the current scenario. This is why you do well to
choose these stocks.
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