Chip Stocks To Rebound This Year: Barrons

Last year was a terrible one for semiconductor investors. But New Street Research believes there are now bargains to be had in chip stocks after such big declines, Tae Kim reported for Barrons.

Photo Insert: Three major risks for the industry were enumerated—including chipmaking overcapacity, potential weakness in the autos and industrial end markets, and the possibility of a deep global recession.

Analyst Pierre Ferragu has said he is bullish on chip equipment and memory stocks for 2023, citing lowered profit expectations from analysts for those two sub-sectors.

In a semiconductor cycle, “reversion to the mean is always a good way to think about [investor] positioning,” he wrote. “We therefore see a good chance for semicap and memory to outperform the SOXX first, as the cycle plays out.”

The iShares Semiconductor (SOXX) exchange-traded fund, which tracks the performance of the ICE Semiconductor Index, skidded 35% last year.

While Ferragu is optimistic, he noted three major risks for the industry—including chipmaking overcapacity, potential weakness in the autos and industrial end markets, and the possibility of a deep global recession.

But he still finds a good risk-reward in chip shares. “If earnings revisions stabilize: SOXX will perform well driven by rerating towards a premium [valuation] compared to the S &P SPX –0.40% [500],” he wrote.

He recommends three specific stocks. The firm has Buy ratings on chip equipment companies ASML and Applied Materials (AMAT), with stock price targets of 770 euros (about $812.92) and $120, respectively. It also has a Buy rating on memory maker Micron (MU) with a target of $75.

WEEKLY FEATURE : MVP Group Keeps Lights On During Pandemic