It is hard to believe that there would enough cheap semiconductor stocks to buy to build a list like this. But today that is what we will be doing, in an effort to start building a position for the future.
The semiconductor sector has had better years than 2022 so far. But in all fairness, the whole stock market has struggled since middle of last year. In spite of still-high pessimism levels, I expect improvement in the second half. The bulls have a legitimate shot at taking some control this coming quarter.
And if that assumption is right, these are cheap semiconductor stocks to buy now to capitalize on that recovery.
If the stock market stabilizes, the upside potential in semis will be near the top. Consider this a thoughtful but not exclusive list of options. Also, it is better to leg into full positions in small pieces, since the CBOE Volatility Index (VIX) is still about 40% above average.
These cheap semiconductor stocks slid fast and hard from their 2021 heydays. This was a direct byproduct of over-exuberance on the way up. Wall Street often overcommits in either direction, thereby creating these extreme situations. But as long as markets are not ready to take another significant leg lower, there should be opportunities among great cheap semiconductor stocks.
Investors need to be moderate with their approach this year. And none of the major semiconductor companies have problems specific to them. They are all suffering from similar extrinsic ailments — mainly the global shortages. But this summer, the shrinkage in demand that central banks are attempting could help.
Now, let’s look at the top cheap semiconductor stocks.
|SMH||VanEck Semiconductor ETF||$203.64|
|AMD||Advanced Micro Devices||$76.95|
VanEck Semiconductor ETF (SMH)
I am opening the list with VanEck Semiconductor ETF (NASDAQ:SMH), which is a trade on the whole semiconductor sector. This is a liquid ETF that represents a blend of all the cheap semiconductor stocks. The SMH ETF is down 34% on the year.
Since its top holdings are a who’s-who in high-tech semiconductors, few can argue against its fundamental qualities. If the equity markets are higher in the future, then the SMH stock is also a winner. I could have even picked a few more companies from its portfolio today, like Qualcomm (NASDAQ:QCOM) for example.
Short term, there are technical challenges from resistance zones above. On the way down, the selling was heavy near $221 and $237 per share. There’s a bit a room before we get there, but there are likely to be sellers lurking there. Such battles are opportunities for the bulls to exhaust the bears. They might stall at first, but with rise above after subsequent pushes.
That’s a necessary process to build a better, more moderate base below. These comments are also true for almost the rest of all cheap semiconductor stocks on our list today.
The next two cheap semiconductor stocks to buy can be interchangeable. They are both momentum stocks and down heavily this year.
Nvidia (NASDAQ:NVDA) stock has suffered some of the blows that Bitcoin (BTC-USD) has taken this year. As the crypto has corrected 70%, so has interest in Bitcoin mining. NVDA stock benefits on the way up from from that mining theme, but it suffers from its drop too.
Therefore it is important to recognize that there is still extra downside potential from that. While Bitcoin showed strength last week, it’s not out of the woods yet. There is a technical scenario that could suggest another 30% to 40% lower from here. I don’t think that’s likely, but be cautious.
But even then, I don’t believe NVDA stock would follow it down that much.
The company has done a great job growing, so its fans will defend when it is already this lean. Year-to-date, NVDA is down almost 50% already. The easy damage has already happened, and the bears will need to work much harder to inflict more pain. Without an extraneous headwind, Nvidia stock will stabilize.
Advanced Micro Devices (AMD)
As mentioned, Advanced Micro Devices (NASDAQ:AMD) stock is almost interchangeable with NVDA for today’s purpose. They both catch a heavy influence from the trade in Bitcoin. Also, they like to hog the headlines. That is why both stocks are down about the same, nearly 50%, so far this year.
AMD also has excellent fundamentals under its leadership team. CEO Lisa Su focused the efforts, and now they sport a strong set of financials. The metrics are as impressive on growth, yet lean on the value side. For that reason I prefer AMD to NVDA, because it has less potential bloat.
Under calmer conditions, the positive narrative should win out. Cheap semiconductor stocks will rise if the markets are not struggling.
Technically, AMD stock could struggle near and going into $88 per share. The sellers will try to stifle the progress these. So the general markets will need to stabilize to help AMD’s cause.
Intel (NASDAQ:INTC) is likely my best example of erroneous extremism. It is the cheapest of the cheap semiconductor stocks to buy, and the way Wall Street treats it is the picture-perfect example of disrespect.
It currently has a trailing price-to-earnings ratio of 6.3. That’s practically an insult. But for now, the market is not giving it nearly as much respect as it deserves.
This stock suits investors with patience and an appreciation for solid businesses. It has earned better respect than this, but that attention will eventually return. Also INTC stock is not as sensitive to the price of Bitcoin.
The only muscle Intel stock really needs to flex is its financial report card. In 2021, it generated almost $80 billion in sales and flowed roughly $20 billion to the net income line. What it lacks in pizazz it makes it up in consistent success. The investment community will fall back in love with it sooner or later, so accumulating some while it’s this cheap make good sense.
Taiwan Semiconductor (TSM)
Taiwan Semiconductor (NYSE:TSM) is an old company that has survived many decades of adverse situations. What is going on now is not likely to kill it. So as long as the indices continue to base, TSM stock will be just fine.
But management will report earnings soon. These events tend to offer a potential of short-term drama from human emotions. The expectations build up so high that they can lead to exaggerated rallies and drops in knee-jerk reactions to earnings headlines. These are temporary, so I’d caution against chasing the initial pop or drop.
Management’s scorecards are as solid as they come. They generate more than $60 billion in revenues and $22 billion in net income. It is hard to argue against this, especially when they have continuously grown the metrics. If the global economies are not going into a long depression, there is legitimate opportunity from here.
In the meantime, I would just be careful around earnings.
Broadcom (NASDAQ:AVGO) stock bounced well off its 2021 base. This is encouraging, showing that its fans are not too eager to dip into the 2020 ranges. The bad news is that this fact leaves it a bit vulnerable from a low-odds scenario. If the markets suffer another significant drop from here, AVGO stock would have a lot further to fall than normal. The base near $420 per share is strong, but would flip to be a bearish catalyst under heavy selling.
The AVGO technical advantage could extend another 9% before hitting a serious resistance zone.
Then there is the help that its dividend brings. Even though rates are rising, it’s nice to have a stock this strong that can also reward its owners with a 3.4% bonus dividend payout.
The trailing price-to-earnings ratio of 24.7 is not screaming cheap, but it is not a detriment either. As long as they continue to execute on plans, the buyers will come to it.
Lam Research (LRCX)
The last of my cheap semiconductor stocks to buy is Lam Research (NASDAQ:LRCX). This one doesn’t make too many headlines, but its financials tell the right story. Lam management grew sales 70% in three years. That’s a thriving business riding a fast wave. The digitization trend is also ongoing and it’s not likely to easy up soon.
The sign of a strong team is growth without bloat. So far, they are doing the first part while delivering $4 billion in cash from operations. There aren’t many problems to threaten LRCX investors’ long term perspective.
But for now, it will face selling resistance this month. This will change in a few weeks, when the buyers have the opportunity to build a positive trend. Then the short-term dips become reasons to buy LRCX stock.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.