Semiconductors Snap Back Ahead of Key Earnings Reports
Mike Zaccardi, CFA, CMT | Jul 25, 2022 13:47
- Micron offered bleak view of semiconductor industry in late June
- But two major global players provided upbeat results in early July
- More chipmakers report quarterly profit numbers this week
Amid a season of negative guidance numbers and concerning tech outlooks, two standouts thus far are Samsung Electronics (KS:005930) and Taiwan Semiconductor (NYSE:TSM).
Earlier this month, Samsung’s many chips. Late last month, industry heavyweight Micron Technology (NASDAQ:MU) said it would cut production as demand may turn south soon.
The popular way to play the space is through the VanEck Semiconductor ETF (NASDAQ:SMH). The fund holds 25 of the world’s largest semiconductor stocks, with Taiwan Semi and NVIDIA making up nearly 20% of the portfolio. SMH is a mega-cap ETF with a weighted average market cap of $152 billion, according to VanEck. It’s also relatively volatile with a 3-year beta of 1.09 vs. the S&P 500.
There are a handful of ETFs I review when trying to get a sense of where the broad market is headed. Transports (IYT), regional banks (KRE), homebuilders (XHB), and semis are the four horsemen in my technical eye.
All these charts have significant repair work to do in order to establish new uptrends. With SMH, there’s been an impressive bounce off the June low, but it is simply back at trendline resistance. Its 200-day moving average is also negatively sloped, indicating an established downtrend.
SMH ETF 3-Year Chart: Downtrend in Place with Falling 200 DMA
Source: Stockcharts.com
The valuation picture is actually quite compelling here, though. According to Yardeni Research, the S&P 500 Semiconductor index trades at just a 14.3 earnings multiple as of July 14 (the group is up about 10% since then). Moreover, when compared to expected EPS growth, its PEG ratio is near 25-year lows.
S&P 500 Semiconductor Index Valuation
Source: Yardeni Research
The Bottom Line
Semiconductor stocks will be critical to watch this earnings season after mixed results from Micron (bearish) and Taiwan Semi and Samsung (bullish). While the group trades at a reasonable valuation, the earnings are still unknown given the uncertain economic landscape. The technical chart, for now, suggests the current snapback is a bear market bounce.
Disclaimer: Mike Zaccardi does not own positions in any of the securities mentioned in this article.
Get The App
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.