Apple Supplier, Lam Research Lead 5 Chip Stocks In Buy Zones As Sector Lifts Nasdaq, S&P 500
Your stocks to watch are five semiconductors that have just entered buy range: Apple (AAPL) supplier Skyworks Solutions (SWKS), Lam Research (LRCX), ASML Holding (ASML), Teradyne (TER), and Marvell Technology Group (MRVL).
The chip sector has been a key reason why the Nasdaq composite has outperformed recently, with the Nasdaq hitting a new high on Friday. Chips are also a significant part of the S&P 500 index, which retook its 50-day moving average Friday.
Chip-equipment makers Lam Research, ASML and Teradyne all have Composite Ratings above 95. The Composite Rating combines earnings and several other key fundamental and technical ratings. All-time stock winners often have Composite Ratings of at least 95 near the start of their big runs.
The Semiconductor-Equipment group was the top-performing industry last week out of the 197 that IBD tracks, soaring 9.8%. The Semiconductor-Manufacturing group ran up a strong 5.4%. The Computer-Data Storage group, which includes some chip stocks, vaulted 9%.
By comparison, the Nasdaq composite jumped 4.2% last week while the S&P 500 gained 3.5% and the Dow Jones 3.25%.
These five new chip breakouts follow Applied Materials (AMAT) and Micron Technology (MU). Several other semiconductor stocks are setting up. Another related chip play to follow is a leading ETF: PHLX Semiconductor (SOXX). The SOXX ETF has cleared a consolidation and hit a new high.
Skyworks shares rose 1.9% to 113.56 in Friday’s stock market trading, just moving past a 112.28 buy point from cup-with-handle base. Volume was 41% below normal though. You want to see volume rise at least 40%-50% above average on a breakout as confirmation of institutional support.
The relative strength line, which tracks a stock’s performance vs. the S&P 500 index, has rebounded from a 52-week low but is still off the high of its consolidation. That’s a concern. But the RS line, which is the blue line in the chart below, is hitting short-term highs.
Earnings at the firm have been growing by an average of 23% over the last four quarters, and it has managed to outperform Wall Street estimates in each of the last seven quarters. The Apple supplier has also been expanding its reach, and is supplying chips to Chinese smartphone companies as well as South Korea-based Samsung Electronics. But the iPhone maker still accounts for around 40% of Skyworks’ revenue.
As for Apple, its shares are closing in on a messy, V-shaped cup base with a high-handle entry of 180.71.
Lam Research stock shot up 5.7% to 224.95 on Friday, clearing a double-bottom base entry of 218.48 and hitting a new high. Volume was 65% above average. The RS line is approaching the consolidation high and is significantly above the prior short-term peak at the middle of the “W”-shaped pattern.
In the last quarter Lam Research’s earnings increased 94% year-over-year, and over the past four quarters the average figure is 98.8%. It has also managed to beat views on revenue and earnings in each of the past five quarters.
Earlier in the week Lam announced a 120% dividend hike and added $ 2 billion to its stock repurchase program. Lam said it plans to return at least 50% of free cash flow to investors over the next five years.
ASML rose 2.1% to 209.41, clearing a 208.58 buy point from a short consolidation. Like Skyworks, volume was 41% below average. On a positive note, ASML’s RS line is at a new high, and has been trending higher since December 2016.
The Dutch chip-equipment maker is currently the largest supplier of photolithography systems. ASML has enjoyed average EPS growth of 58.5% over the last four quarters, and in its most recent quarter enjoyed a year-over-year increase of 39%.
Teradyne advanced 1.9% to 49.40 on Friday, clearing a cup-base entry of 48.63, but in volume that was 9% below normal. The RS line was already at a new high before the breakout.
The Massachusetts-based company is one of the leading suppliers of automation equipment for test and industrial applications, with customers including Samsung, Qualcomm (QCOM) and Intel (INTC).
Teradyne has enjoyed healthy quarterly EPS growth averaging 53.5% over the past four quarters. Its earnings per share were up 44% year-over-year in its most recent quarter. The company has managed to beat views on earnings and revenue for the past seven quarters.
Marvell Technology Group
Marvell just topped a double-bottom base on Thursday, closing at 24.32, just above a 24.31 entry from the middle of the W, as well as a 24.05 buy point from a short handle. Late Thursday, Marvell reported better-than-expected earnings and revenue for the seventh straight quarter. Shares traded in a range of 23.85-25.18, but closed up just 0.1% at 24.34. Volume has been very strong for the past three sessions.
The California company, which is domiciled in Bermuda, produces semiconductor products for the storage, communications and consumer spaces.
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