Semiconductor stocks saw massive capital inflows last week as many jumped to record highs. With fresh strength taking the industry, now is a perfect time to hunt for opportunities. While some constituents have run beyond low-risk entry points, others still sit at attractive buy areas.
We’ve seen increased attention on the worldwide shortage of chips. Causes range from spikes in demand for electronics, a slowdown in production following the pandemic, and the U.S. trade war with China during the Trump presidency.
While companies across various industries are grappling with the longer lead times to get their hands on semiconductors, it doesn’t seem to be adversely impacting the price action of chip companies.
Quite the contrary, traders are rushing into the space and extending well-entrenched uptrends. I’ve scoured the top holdings in the VanEck Vectors Semiconductor ETF (NYSEARCA:SMH) and found tasty trade setups in these three stocks.
After a brief look at their respective patterns, I’ll share my preferred way to play.
3 Sizzling Semiconductor Stocks to Buy: Texas Instruments (TXN)
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Perhaps Texas Instruments’ most impressive feat this year was how rapidly it rebounded from its earnings gap. The underwhelming report created a quick trip to the rising 50-day moving average. However, buyers rapidly snatched up the discount.
The previous month of consolidation made last week’s breakout all the more appealing. When prices breach resistance after a multi-week base, it signals a new advance is kicking off. This next advance probably will have more legs than if TXN prices were extended ahead of the breakout.
The last year’s uptrend has been slow and steady, so I suggest taking a longer-term view if you’re playing this pattern.
Bull call spreads should do the trick.
The Trade: Buy the May $180/$190 bull call for $4.
The max loss is $4, and the max gain is $6.
Applied Materials (AMAT)
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If Texas Instruments is a tortoise, then Applied Materials is a hare. Though we’re only a month-and-a-half into 2021, AMAT stock is already up 34% on the year. Last week’s single session pop saw volume swell past 12 million shares, marking its highest volume day of the year. With that type of participation backing the breakout, you’d be crazy to bet against it.
Next week’s earnings report does up the risk factor a bit, but given how quickly buyers came to rescue TXN’s misstep, I highly doubt AMAT stays down if it does happen to slip. To avoid any implied volatility shenanigans surrounding the event, I like the idea of building a spread over buying calls outright.
The Trade: Buy the April $115/$125 bull call for $3.85
The max loss is $3.85, and the max gain is $6.15.
Semiconductor Stocks: KLA Corp (KLAC)
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The final of my top three semiconductor stocks, KLA Corp sailed through earnings earlier this month with its fundamental story and uptrend intact.
The recent consolidation phase ended last week when prices soared 7%. As with any stock moving toward a record, KLAC is firmly planted above all major moving averages. That means future pauses or pullbacks should be buying opportunities and quickly corrected.
At $328, KLAC is a bit rich for buying calls outright. Instead, the bull call vertical is once again my strategy of choice.
The Trade: Buy the June $330/$350 bull call for $8.10.
The max loss is $8.10, and the max gain is $11.90.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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