The recent sell-off in shares of semiconductor-equipment makers has created some attractive buying opportunities, Needham analyst Edwin Mok said Friday.
IBD’s Electronics-Semiconductor Equipment industry group peaked on June 9 and has fallen 16.7% through Thursday’s close. The group is currently ranked No. 15 out of 197 groups tracked by Investor’s Business Daily. Just a month ago, it was the No. 2 group.
“After reaching an intraday high on June 9, the (semiconductor capital equipment) stocks have been selling off with the tech sector, with the group declining more than the rest of the market,” Mok said in a note to clients. “We have multiple investors asking us if anything has fundamentally changed for the group. As we stated in our June 27 note, we believe the fundamentals of the group remain strong, but we expect volatility for semi-cap stocks to increase in the coming months.”
Mok recommends using the near-term weakness in the sector to buy select stocks ahead of the Semicon conference July 11-13, which is usually an upbeat event and could be a potential catalyst to turn the tide for sector stocks.
IBD’S TAKE: For the latest news on chip stocks, visit IBD’s news page Chip Stocks To Watch And Semiconductor Industry News.
Lam Research shaved early losses of as much as 1%; at the session low of 140.83, the big-cap tech and IBD 50 member was off as much as 15.7% from its all-time peak of 167.05 hit last month. This means the current correction is too deep for a flat base, but a cup or double-bottom pattern could eventually form.
Advanced Energy was flat, near 65.20. Axcelis sank 1.5%, near 21, falling further below its rising 50-day moving average, which is near 21.89. Cabot Microelectronics was down more than 1%, near 73.76, and has been hovering right below its 50-day line for more than two weeks.
Mok attributes some of the sell-off in the sector to profit-taking, because the group was up 28.3% year-to-date through Thursday.
“Some investors fear the group is peaking, and this will likely keep semi-cap stocks volatile in the near term,” Mok said. “While second-half 2017 is unlikely to deliver much growth for most semi-caps, we remain confident in our long-term view that the industry is only at the middle of a three-year growth cycle (starting in 2016), with China potentially an incremental driver that could extend this cycle further to the 2019-2020 time frame.”
Separately, Stifel analyst Patrick Ho also believes the recent pullback in chip-gear stocks is a buying opportunity in the sector for investors.
Strong spending on 3D Nand memory chips has positive ramifications for Applied Materials (AMAT), Lam Research and Nanometrics (NANO), Ho said in a report Friday. Component suppliers like MKS Instruments (MKSI), Ichor Holdings (ICHR) and Ultra Clean Holdings (UCTT) also should benefit from the trend.
Applied Materials, Lam Research and Ichor are on the IBD 50 list of top-performing growth stocks.