Semiconductors are a very interesting market segment for long term investors. However, what’s important to understand is that semiconductor stocks is a bi-furcated market. There are many types of semis and in fact there are only a few growth markets that will require exponentially more chips over time. While the semis sector chart looks promising, there are a handful of semis stocks that will beat the market and the sector over time, one of them is in our Momentum Investing portfolio with an overweight rating.
Recently, we wrote This Semiconductors Segment Is Outperforming The Market And Will Continue To Do So in which we highlighted the subsector (in the semis universe) that will beat all markets and sectors in the years to come:
What’s really interesting is that not all semiconductor companies are involved in the electrification trend. But those that are continue to show really solid growth numbers. Consequently, they are largely rewarded by the market with higher stock prices!
Indeed, everything electrification related will be big. The signs are there, the data points are confirmed, it is happening.
The SOXX sector ETF chart looks really interesting, but is not reflecting the potential of the semis that are playing the electrification trend.
In fact, the SOXX ETF is now flirting with a breakout point. The downtrend that started in January of this year might be coming to an end, pending a breakout validation.
However, the one leader in the electrification trend closed the week at ATH. We gave the stock an overweight rating and took a large position of 37.5% against our Momentum Investing portfolio (a few months ago). It is the only semis stock that closed at ATH, most semis are 25 to 40 pct below their ATH.
We strongly recommend investors to focus on semis that are actively playing the electrification trend. They will outperform the market and 95% of other sectors. That’s because the number of chips required in ‘things’ in the electrification trend (think automotive) is exponentially more than pre-electrification.
Semis that are currently leaders in the electrification trend are buy and hold for the long term, with multi-bagger potential.
