Semiconductor stocks have been on a roll this year, and Wall Street is wondering if further gains are ahead. There are a number of ways to play the semiconductor sector, as stocks are still at attractive entry levels despite the worry.
While there are different sub-sectors in the semiconductor space, their products are usually comprised of silicon and a “chip.” These chips, or devices, can be found in your appliances, cars, computers, smartphones, tablets and even medical equipment.
The semiconductor industry can be fickle based on supply and demand, and the recent warning from Intel Corporation (NASDAQ:INTC) is a good example. Intel cut its first-quarter revenue outlook mid-month based on weaker personal-computer demand.
The “connectivity of everything” will continue to evolve, and semiconductor stocks are playing a major role in how things connect. Consolidation in the industry is increasing, and the deal this month between NXP Semiconductors NV (NASDAQ:NXPI) and Freescale Semiconductor Ltd (NYSE:FSL) highlights some of the action this year.
Some of my favorite players — and less expensive names — include Atmel Corporation (NASDAQ:ATML), in which my subscribers recently booked a 45% profit by playing bullish call options, and a name I mentioned last week — Cypress Semiconductor Corporation (NASDAQ:CY).
Atmel made a strong move past $9 earlier this month on the NXP and Freescale merger news after Goldman Sachs Group Inc (NYSE:GS) said the likelihood of Atmel getting a takeover bid had increased. Although shares fell 4% on Monday, Atmel is worth another look.
Meanwhile, Cypress Semiconductor slipped 2% to start the week. CY shares have been in a strong uptrend following December’s breakout and, although they fell below their 50-day moving average this week, support at the $14 level held.
CY stock could easily reach $18 – $20 over the near term on renewed momentum. For value investors seeking yield, CY currently pays a dividend of 44 cents per share, which equates to a 3% yield at current levels.
The recent 52-week high of $16.25 triggered earlier this month, and Cypress Semiconductor will announce earnings during the second week of April. This could be a positive catalyst for higher highs, and I’m still holding the CY April 16 calls to play the possible upside.
My exit target is still set at 80 cents, and I don’t have a stop loss in place, as I tend not to use stops on options below 50 cents due to their excessive volatility. Instead, I’ll be watching for CY to either hit my upside target or will watch its chart for any signs of weakness to exit.
At the time of this writing, the CY April 16 calls were trading at 20 cents. If my 80-cent target is reached, it would represent a gain of 300% from current levels. For investors interested in the common stock, I would view this pullback in CY as a buying opportunity.
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