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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) is up 7.7 per cent over the past month compared with a gain of only 0.7 per cent for the Nasdaq Composite Index and a decline of almost 1 per cent for the Technology Select Sector SPDR Fund (XLK). It is clear semi-conductor stocks are outperforming despite a global shortage in semi-conductor chips, which seems to be affecting the automobile industry hardest. This week, I look for opportunities in one of the best performing sectors of the past month.

The screen

Using Trading Central Strategy Builder, we begin by setting a minimum threshold of US$5-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 price returns 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 we found

Select U.S.-listed semi-conductor stocks

RankCompanyTickerMkt. Cap. (US$ Bil.) 4W Price Perf. (%)Chg. from 52W High (%)YTD Perf. (%)1Y Perf. (%)Div. Yld. (%)P/ERecent Price (US$)
1Amkor Technology Inc.AMKR-Q6.52.1-9.876.5143.90.614.326.71
2Nvidia Corp.NVDA-Q548.57.1-3.070.876.40.176.4223.45
3Applied Materials Inc.AMAT-Q124.74.0-5.460.0141.20.724.5141.09
4KLA Corp.KLAC-Q55.89.4-2.441.2102.21.127.7368.52
5Brooks Automation Inc.BRKS-Q7.827.4-3.654.4134.10.458.8105.06
6Texas Instruments Inc.TXN-Q180.94.2-0.819.445.02.327.4197.41
7Broadcom Inc.AVGO-Q206.13.6-2.014.342.42.937.5504.52
8Entegris Inc.ENTG-Q18.115.40.039.099.70.253.2135.25
9Analog Devices Inc.ADI-Q93.46.0-0.817.754.51.637.5175.78
10Power Integrations Inc.POWI-Q6.41.6-4.029.7106.20.553.1107.05
11Microchip TechnologyMCHP-Q44.36.6-3.116.965.41.194.8163.08
12Monolithic Power Sys.MPWR-Q23.35.1-0.138.7101.50.5118.5509.94

Source: Trading Central

Topping our list is Amkor Technology Inc., an integrated circuit packaging and testing company with the second-smallest market cap on our list at US$6.5-billion. Looking at the company’s stock price, Amkor has the highest year-to-date and one-year performance on our list at 76.5 per cent and 143.9 per cent, respectively. The stock price hit a new record high just a week ago and has since pulled back almost 10 per cent.

Nvidia Corp. designs graphics processing units. The company has the largest market cap on our list at US$548.5-billion. The stock price has been in a strong uptrend since June and has the second-best year-to-date return on our list at 70.8 per cent. The stock price is just 3 per cent below its record-high.

Entegris Inc., a supplier of advanced materials for the semi-conductor and other high-tech industries, just posted a new all-time high after breaking above a key resistance price level at US$126.30. The company has the second-best four-week performance on our list at 15.4 per cent.

It looks like momentum stocks remain in play and Monday’s market reversal, tied to China Evergrande Group’s debt issues, was in fact another buying opportunity. No one knows where the market will go next, but staying with the momentum leaders seems to be the safer bet in this bull 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 a 16-per-cent annualized total return compared with 15.4 per cent for the broad S&P 500 index.

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.

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

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