Semiconductor stocks have been on a strong run for the past three months. In fact, the PHLX Semiconductor Index (NASDAQ: SOX) is up about 35% off its late-August bottom.
Most chip companies already had their turn in the earnings confessional, and most beat the consensus estimates. Intel Corporation (NASDAQ: INTC), Texas Instruments Incorporated (NYSE: TXN), Analog Devices, Inc. (NYSE: ADI)? and Applied Materials, Inc. (NASDAQ: AMAT) not only topped their respective earnings estimates, but the stocks have also done very well after earnings, which is what’s most important from our perspective.
Next up in the chip parade is National Semiconductor Corporation (NYSE: NSM), which reports after the close on Thursday. Analysts expect a 60% increase from the same quarter a year ago. That may sound daunting, but it pales in comparison to the average 180% growth posted by the company over the past three quarters. What’s more, the company has beaten the analyst estimate for seven straight quarters.
On the charts, thanks to a 10% pop in just three days last week, the stock catapulted above several moving averages and resistance at the $14 level. Next up is some potential resistance at $15 before reaching the 2010 high at $16.
Sentiment shows the Street is clearly aligned in the skeptical camp. The put/call ratio is coming off a huge peak, indicating the beginning of unwinding pessimism. Short interest is robust and just a third of covering analysts rate the stock a “buy.” Along with the analyst profit estimate, it’s clear that the expectation bar is low.
With the sector putting up solid numbers, a lot of chart congestion out of the way, and few expecting much from the company, the path of least resistance appears to be to the upside. Give the move some time to play out, though, as the sector has room to run higher through the end of the year. Play the NSM Jan 15 Calls, which are currently trading for around 50 cents.
