These 7 semiconductor bearings can be close to a bottom. This chart pattern shows when and how much they can return.

Semiconductor stocks have been hit hard since the industrial group rose to record highs in early January. Analysts at Jefferies see a “peaking” pattern similar to those in 2014-2015 and 2017-2018, and expect excellent performance for some below what they call “mini-upcycles.”

Below is a list of seven semiconductor stocks that analysts, led by Mark Lipacis, believe are best owned through this cycle.

A pattern to follow

Here are three charts to illustrate these patterns, based on price actions for iShares Semiconductor ETF SOXX,
which tracks the performance of PHLX Semiconductor Index SOX
of 30 shares.

The first chart runs from the end of 2013 to the end of 2015:

Set of facts

You can see the repetition pattern of peaks, pullbacks and rebounds.

Here is the action for SOXX from the end of 2016 to the end of 2018:

Set of facts

Once again, we see the pattern of “repeat peaks” for SOXX.

Now look at a one-year chart for SOXX until the end on January 28:

Set of facts

In a note to clients on January 31, Lipacis called the current pattern, with SOXX falling 19% from its intraday high of $ 559 on January 4 to its $ 455 close on January 28, a different “peaking process” .

His analysis of the two previous times this happened indicates that there are “several mini-peaks and lows” that typically last 45 days. So we may still be at an early stage for the current mini-cycle.

Lipacis went on to write that semiconductor stocks can fluctuate plus or minus 40% during these periods, and that “the stocks that perform worst during mini-downcycles usually perform best during mini-upcycles, suggesting that they own” the the following seven, “especially after recent weakness.”

company

Ticker

Price fall – 2022

Fall from 52 weeks height

Closing course – 28 January

Height 52 weeks

Date for 52 weeks maximum

Nvidia Corp.

NVDA

-22%

-34%

$ 228.40

$ 346.47

22/11/2021

Advanced Micro Devices Inc.

AMD

-27%

-36%

105.24 USD

$ 164.46

30/11/2021

Microchip Technology Inc.

MCHP

-17%

-20%

$ 72.22

90.00 USD

28/12/2021

Marvell Technology Inc.

MRVL

-24%

-29%

$ 66.32

$ 93.85

12/08/2021

Lam Research Corp.

LRCX

-22%

-23%

561.14 USD

$ 731.85

01/04/2022

NXP Semiconductors NV

NXPI

-17%

-21%

$ 189.45

$ 239.91

12/07/2021

ON Semiconductor Corp.

ON

-21%

-25%

$ 53.76

$ 71.26

01/04/2022

Sources: Jefferies, FactSet

You can click on the tickers for more about each company.

Then read Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Long-term performance: SOXX vs. S&P 500

To be sure, the above suggestions from Jefferies, within what may be a recurring pattern of highs and lows for this cycle, would be a tactical trade.

For long-term investors, the performance of SOXX relative to the S&P 500 Index SPX,
tracked by SPDR S&P 500 ETF Trust SPY,
has been nothing short of breathtaking. Here is a three-year chart of the total return on reinvested dividends up to January 28:

Set of facts

Now five years:

Set of facts

And 10 years:

Set of facts

A look ahead: SOXX vs. SPY

One reason for SOXX’s long-term relative outperformance is that the semiconductor industry has increased sales and earnings faster than the broad market.

Here are the expected compound annual growth rates (CAGR) for sales per. share (SPS) for SOXX and SPY for the next two and three calendar years, based on consensus estimates among analysts who have been asked by FactSet:

AN F

Two-year expected sales CAGR

Three-year expected sales CAGR

East. SPS – 2021

East. SPS – 2022

East. SPS – 2023

East. SPS-2024

iShares Semiconductor ETF

10.3%

10.2%

$ 78.83

$ 88.94

$ 95.88

$ 105.45

SPDR S&P 500 ETF Trust

6.4%

6.7%

$ 153.46

$ 164.59

$ 173.57

$ 186.43

Source: FactSet

Here, the same comparison is based on estimates of earnings per. shares:

AN F

Two-year expected EPS CAGR

Three-year expected EPS CAGR

East. PE – 2021

East. PE – 2022

East. EPS – 2023

East. EPS-2024

iShares Semiconductor ETF

11.5%

10.5%

$ 22.56

$ 25.45

$ 28.03

$ 30.45

SPDR S&P 500 ETF Trust

9.5%

9.7%

$ 20.47

$ 22.34

$ 24.53

27.00 USD

Source: FactSet

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