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What are we looking for?

U.S. semi-conductor stocks showing strong price momentum.

The SPDR S&P Semiconductor ETF (XSD-NYSE) is up an impressive 49 per cent year to date even after the slight pullback earlier this week. Many traders and investors fear buying stocks near record highs in case of a possible sell-off. Record high prices can often spark emotional decision-making; those who sat on the sidelines missed out on the S&P 500 posting a new record high five times this year. Can semi-conductor stocks keep the bullish momentum going in the broad U.S. market? This week I look for opportunities in one of the best performing sectors of the year.

The screen

Using Trading Central Strategy Builder, we begin by setting a minimum threshold of US$2-billion in market capitalization. This will focus our search on mid- to large-cap U.S. semi-conductor stocks for greater stability and performance history.

To ensure we focus on firms with the best price momentum over the past month, we will constrain our search to companies with a positive four-week price performance and currently trading within 10 per cent of their 52-week high. In addition, year-to-date and one-year return performance were required to be positive.

We have also included annual dividend yield and price-to-earnings ratio for informational purposes.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder is available through leading retail brokers in Canada and worldwide.

What did we find?

Topping our list is Analog Devices Inc., an analog, mixed signal and digital signal processing chip maker. Analog currently has the best four-week price performance on our list and a year-to-date return of 34.2 per cent. The stock price has been supported by its 200-week moving average since July, 2011, indicating a healthy long-term uptrend. On Thursday, the company announced it has filed a patent infringement lawsuit against rival chip maker Xilinx Inc., alleging its unauthorized use of several Analog patents relating to analog-to-digital converter technology.

Nvidia Corp. designs graphics processing units that improve the experience on computing platforms. The company’s shares declined more than 50 per cent from their record highs posted in September, 2018. Since then, shares have retraced more than 50 per cent of that move and have performed an impressive 57.5 per cent year-to-date. Nvidia is the most expensive stock on our list on a per-share basis, but also has the most potential to retest record highs as long as semi-conductors continue to outperform the market.

Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had an impressive 28.6 per cent annualized return compared with 8.6 per cent for the S&P 500.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Select U.S.-listed semi-conductor stocks

RankCompanySymbolRecent Price (US$)Mkt. Cap. (US$ Bil.) 4W Price Perf. (%)Chg. from 52W High (%)Div. Yld. (%)P/EYTD Perf. (%)1Y Perf. (%)
1Analog Devices Inc.ADI-Q114.3942.12.1-8.31.922.134.228.8
2Skyworks Solutions Inc.SWKS-Q98.8216.81.0-5.41.717.749.343.4
3Microchip Technology Inc.MCHP-Q96.5423.10.7-5.01.557.934.832.0
4Nvidia Corp.NVDA-Q209.42128.00.9-3.90.357.857.533.7
5Cypress Semiconductor CY-Q23.468.71.0-2.71.989.884.775.5
6Monolithic Power SystemsMPWR-Q161.827.00.6-

Source: Trading Central

Gary Christie is head of North American research at Trading Central in Ottawa.

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