Stock market routs are miserable events. They sow widespread financial pain and suffering … along with a heaping dose of anxiety.
As the novel coronavirus fanned out across the globe, the Dow Jones Industrial Average plummeted nearly 40% from its mid-February all-time highs. All the major averages dropped into official bear markets.
Though we’ve since seen a comeback, the stock market averages could drift even lower and reach their ultimate lows a few weeks or months from now.
That said, even if the S&P 500 has not bottomed out, many individual stocks have.
“Best of breed” stocks, in particular, tend to bottom out first, and then they move higher while the rest of the market is languishing. Since we rarely get the opportunity to buy best-of-breed stocks on the cheap, we should be looking for the opportunity to do that.
So today I’m revealing one sector that I believe will soon be creating triple-digit gains once again…
And a best-in-breed way to play it.
The Sector Getting a Coronavirus Boost
Over the past year, semiconductors nearly suffered a one-two knockout.
First, investors beat up the sector last year on fears of slowing growth and worries about the U.S.-Chinese trade tensions. Remember those?
Then, along came Covid-19 to yank the global economy into reverse.
But now, two triggers will pull semiconductors out of their doldrums and make them a big winner for investors once again.
Chip Trigger No. 1: Near term, of course, the coronavirus epidemic is depressing demand. But long term, many companies might attempt to counteract the operational risks of the next global pandemic by shifting more of their processes to machines of some sort, rather than human beings.
Almost every commercial product or recreational activity that eliminates or reduces human interaction relies on semiconductors and transistors.
In the world of personal amusement, think of gaming consoles, tablets, virtual-reality headsets and smartphones. In the commercial space, robotics and automation, artificial intelligence, machine learning and computer vision all require computer chips of some sort.
During the pandemic, many of us are learning, working and communicating with Zoom (NASDAQ:ZM), Slack (NYSE:WORK) and similar services … and many of us will keep doing so even after the danger has passed.
Plus, chip-dependent technology is helping us grapple with the coronavirus now — and will keep doing so in the months to come.
Medical workers are using robots and other automation tech to treat patients from a distance. Many cities and nations are using drones to disperse crowds and disinfect areas.
For example, Xenex Disinfection Services produces robots equipped with UV lights that can disinfect rooms and common areas in hotels, hospitals and other spaces. Its orders have jumped 400% in the first quarter, compared to a year ago.
Then there’s telemedicine. It’s been around for years, but many of us are now using it for the first time to speak with doctors and receive treatment rather than visiting in person. Just look at what the coronavirus has done for top telehealth company Teladoc (NYSE:TDOC).
5G Isn’t Disappearing
Chip Trigger No. 2: This fall, Apple (NASDAQ:AAPL) is still expected to debut a new 5G-native iPhone.
That alone isn’t bullish for the chip sector … but it shows that 5G is becoming more and more a part of our daily lives.
This new mobile broadband standard is blazing fast — 100 times faster than the current 4G platform. Without it, we won’t get smart cities, the internet of things (IOT), autonomous vehicles, remote patient monitoring or long-distance robotic surgery.
All those things are possible now — but without 5G they’re not viable, and they’re not scalable.
Moreover, once 5G goes widespread, we’ll all upgrade our smartphones, laptops, modems, smart TVs, and plenty more personal tech.
All that will require many, many, many more semiconductors. No wonder analysts say that 5G will provide a huge boost for the chip industry.
IHS has predicted that global semiconductor market revenue will rebound to 5.9% growth in 2020. And revenues will rise from $422.8 billion in 2019 to $448 billion this year.
Moreover, by 2035, 5G will enable $1.3 trillion to $1.9 trillion worth of economic output in the United States alone — and a big chunk of that will go toward chips.
And so, in the midst of this harrowing selloff, I think you should take a closer look at this best-in-breed semiconductor company.
Micron Stock Is Better Than ‘Coronavirus Resistant’
Micron Technology (NASDAQ:MU) is one of the world’s Top 5 memory chip makers. It manufactures and markets dynamic random-access memory chips (DRAMs), static random-access memory chips (SRAMs), flash memory, semiconductor components and memory modules.
The Boise, Idaho-based company has been riding a powerful jet stream of innovation. Every time people use buzzwords like artificial intelligence, autonomous vehicles, internet of things, virtual reality, robotics or 5G, they are talking about combinations of storage, memory, and software.
The world of today is already heavily reliant on bundles of software and semiconductors. The world of tomorrow … even more so.
For example, according to Micron’s estimates, the automotive memory market will roughly double between now and 2021.
Looking out to 2025, when fully autonomous vehicles will begin rolling down the road, Micron predicts those vehicles will need nine times the amount of DRAM as today’s autos and a whopping 100 times the amount of NAND flash memory.
Other industries are ramping up demand for memory as well.
On March 25, Micron reported outstanding earnings results. It posted earnings per share of 45 cents and revenues of $4.8 billion. Both numbers topped analyst estimates by a healthy margin. The company also provided a surprisingly upbeat forecast for next quarter, also topping analyst estimates.
Plus, Micron corroborated my suspicion that the pandemic will help boost the chip sector by revealing that it is seeing a surge in orders from data center operators that are building more capacity to deal with the expansion of people working from home.
Micron also cited increased gaming activity as a driver of semiconductor demand. Think: Junior “sheltering in place” in the basement playing Call of Duty between meal breaks.
The entire semiconductor sector had been on a tear in early 2020, until the coronavirus epidemic derailed its bull market.
But the resulting selloff is providing an opportunity to buy best-of-breed tech stocks like Micron “on sale.”
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.