The chip sector has been on a tear this year, but there is not necessarily a sign of bloat yet. The S&P 500 just made new all-time highs, so the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) had a tailwind. But the individual rhetoric within the sector has repaired itself from the damage it suffered into last Christmas.
For example Micron (NASDAQ:MU), Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC) stopped being falling knives and are no longer the butt of the jokes on Wall Street. The experts in the media are back on board with owning these semiconductor stocks, even up at these levels.
But when looking at chip stocks to buy it is also important to note that their recovery happened despite the economic war between the U.S. and China. The countries still have not inked a deal even though they keep talking about one. And this sector sits squarely in the line of fire of that battle.
Let’s take a deep look into semiconductor stocks to trade after earnings events. Specifically, I will examine Advanced Micro Devices (NASDAQ:AMD), MU and INTC stock below.
Stocks to Trade After Earnings: Advanced Micro Devices (AMD)
AMD stock stands out on its own from the bunch. It has been the chip champ for a long while. Year-to-date, it is up 90%, which is more than double the performance of INTC and MU.
Over two years, it is even more of an oddity as AMD is up 220%. This is seven times as much as the SMH exchange-traded fund and much more relative to its competitors today.
Fundamentally, the stock is expensive, but in this case, investors got what they paid for. The growth path that Advanced Micro Devices has justifies the premium that Wall Street lets it carry. Under the leadership of CEO Lisa Su, AMD management gets a lot of credit for the turnaround story.
Consensus is that it is now at par with its competitors after years of being perceived as inferior in performance. Regardless of what is true and what is perception, there is no arguing with price. They say price is truth and for AMD stock longs continue to win holding the stock. If markets are higher, then so is AMD stock.
Micron stock has long been dubbed as a value trap. Even when its price-to-earnings ratio fell to 3, experts on Wall Street still refused to endorse it last Christmas when it fell 55% as a bullish opportunity. Now that it has just finished a 70% rally off those lows, the rhetoric is less negative than it was at $30 per share.
The truth is that both extremes are wrong and reality lies somewhere in the middle.
So from here, the MU stock price will depend largely on the general markets. If the S&P continues its year-end rally, then MU has a good chance at breaking out from $52 per share and that would be a spike opportunity.
But buying it outright here is putting a lot of faith in the bulls. And given what I’ve seen from them, I’d prefer to either sell puts and put spreads into MU stock than buy upside hopium. This way I can leave some room for error in case there is a hiccup in the trade negotiations. Otherwise, it is usually best to wait for chart confirmation of the breakout before chasing it up to $57.5 from the neckline.
INTC stock recently has had the opposite fate as AMD. It suffered from a management crisis that derailed the company and the stock. Intel is trying to slowly steer the ship back into line. And time will tell if the damage to the stock will last long. Year-to-date, INTC is up only 23%, which is half as much as the SMH and Micron, and less than one-third of AMD’s performance. Investors are still waiting for a catch up reward this year. But the important part is that there is tangible progress.
Fundamentally, INTC stock is the cheapest of the three semiconductor stocks to buy today. This is even after a 35% rally off the May lows. So now its price sits at a prior failure level. The last time it was there, the stock fell 27% from April high to May low. So it’s up to the bulls to prove that this time it’s going to be different. This would be the third time INTC stock would try to breakout of the two-year range. And Wall Street investors will give up on it again if they disappoint once more.
Sentiment has changed since last Christmas, but we are still hostage to headlines. But things are going well enough that the bulls are in charge of the equity markets. Unless politicians want to purposely ruin Christmas again, this is likely to last for a few more months. So the easier path for stocks like INTC (and the other semiconductor names here) is up.