Tuesday, April 14, 2020
Forget the toilet paper and hand sanitizer.
As Barron’s just reported, corporations are hoarding something else: semiconductors!
We shouldn’t be surprised. Nowadays, these chips power everything from data centers and smart phones, to computers and home security systems.
This explains why I believe the chip industry will bounce back so quickly…
And why every investor, including you, should be buying chip companies right now.
We Can’t Stop Ourselves
Covid-19 might impact how we work and live in the future…
But one thing it won’t change is our demand for chips.
The fact is, our appetite for electronic devices is so voracious, we can’t stop ourselves from using them and constantly buying new ones.
The latest proof comes from China, the epicenter of the crisis. Within a few weeks of the virus peaking, demand for smartphones started roaring back:
As Reuters reports, mobile phone shipments for March reached 21 million units. That’s a 300% increase from February.
Networks Need To Get Bolstered
The increase in working from home and sheltering in place is creating a surge in online usage.
But as we spend hours every day now video conferencing, gaming, and streaming, weaknesses in our internet networks have been exposed.
That’s why networks across the globe need to get bolstered in the near future.
How can investors like us take advantage of this situation? Buy the companies that make the chips that power these networks!
Let me explain…
Get Exposure to Semis
After evaluating trading data on more than 400 hedge funds, Alastair Pinder of HSBC notes that one of the key trading ideas from the last 3 months has been to invest in semiconductor stocks.
Certainly, there’s an easy way for us to follow their lead: buy a diversified chip ETF.
Two of the biggest are the iShares PHLX Semiconductor ETF (SOXX) and the VanEck Vectors Semiconductor ETF (SMH).
However, investing in an ETF means owning the best and the worst performing chip stocks. And that translates into reduced upside potential.
The smarter and more profitable path is to invest in individual chip companies.
Like these two…
An Easy Gain of 25%+
The first is NXP Semiconductors (NXPI).
NXPI allows us to own all the most promising tech trends in a single investment.
That’s because it sells chips for all of them: self-driving cars, electric vehicles, voice assistants, 5G networks… the list goes on and on.
Historically, this stock trades for 16x to 17x earnings. But because of the market sell-off, shares currently trade for less than 13x forward earnings.
So, as things get back to normal, we’re talking about an easy gain of 25%+.
And a 20% Discount
The second chip-related company to buy is Lam Research Corporation (LRCX).
Rather than making chips, Lam makes the machines that make chips.
As chips get more complex, sales for the company’s equipment are expected to increase meaningfully.
Here’s the key: to profit from Lam, we don’t need to be right about which company is going to sell the most of any type of chip — we just need to be right that chip sales are headed higher.
That’s because Lam will be selling more equipment to all the chip suppliers.
And thanks to the recent market sell-off, we can pick up its shares on the cheap:
Based on my calculations, the company is currently trading at a 20% discount to fair value.
Don’t miss out!
Ahead of the tape,
Ahead of the tape,