Today we’re shopping the steep discounts being offered in the technology sector. Join me as we search for the best semiconductor stocks to buy while the chips are down.
One of the hardest decisions for emotionally driven traders is to buy during a panic. It goes against your internal wiring and feels icky. But in the long run, it’s the best thing you can do. After all, there is no selling high if you’re not willing to buy low.
And you don’t have to buy the hardest-hit areas like oil stocks, airlines and cruise lines. You can focus on the spaces that are less sensitive to the current crisis. Semiconductor stocks were leaders before the crash, and they’re likely to be winners afterward.
Let’s take a closer look at three of the most attractive chip stocks to buy.
Semiconductor Stocks to Buy: Advanced Micro Devices (AMD)
Advanced Micro Devices (NASDAQ:AMD) has fallen to its rising 200-day moving average. It has been an area of interest over the past two years, a place where buyers have gathered to defend the long-term uptrend. And while it remains to be seen if AMD stock can hold above it, the shares have fallen far enough from their peak (-32%) to start buying regardless.
With option premiums in the stratosphere, I’d be remiss if we didn’t structure a trade to capitalize. So, rather than buying AMD outright, let’s sell the April $37 put for around $3.50.
If the stock sits above $37 at expiration, you’ll capture the $3.50. If it sits below the strike, then you’ll be obligated to buy shares a cost basis of $33.50, which is a great entry point if you like the company long-term.
Nvidia (NASDAQ:NVDA) shares have been hit even harder than AMD, falling almost 40% from last month’s peak. They, too, find themselves searching for support at the 200-day moving average. This morning’s 6% jump is at least providing some evidence that buyers are coming out of the woodwork. But, given the chaotic market, it’s hard to trust a single up day.
Nonetheless, I like the entry point here if you’re willing to bottom fish this beaten-down stock. Once again, I want to exploit the overpriced options by selling puts. Because NVDA stock is much higher than AMD stock, let’s use a put spread to better control the cost.
Sell the April $180/$170 bull put spread for around $3. Consider it a bet that NVDA sits above $180 at expiration.
Yesterday’s epic slide pushed Intel (NASDAQ:INTC) shares to a long-term support zone. Since late-2017, the area around $43 has halted several selloffs and created a reliable floor. This morning buyers are returning once more to defend their territory. Although INTC stock has already broken through the 200-day moving average and suffered more damage than AMD and NVDA, at 35% off its highs, I think a big enough haircut is priced in to justify dipping your toes into the water.
Its lower share price makes naked puts a viable trade. Sell the April $45 put for around $3.
If Intel shares are above $45 at expiration, the put will expire worthless allowing you to pocket the $3 credit. If it falls below $45 at expiration you’ll be required to buy shares at an effective purchase price of $42. At that entry, the dividend yield would be over 3.1%, so it’s an attractive entry point for long-term investors.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!