During the bull run of the past decade, semiconductor stocks have been key drivers of the positive side of the wider technology sector. Although initially among the stocks that sold quickly during the COVID-19 sale in February and March, most chip stocks have made a remarkable comeback since they hit 52 weeks of lows in late March.
So far in 2020, the overall followed is nearly 10%. Therefore, in this post we will look at what investors can expect from the semiconductor industry in the coming months in the long term. In addition, we will introduce two sectoral exchange-traded funds (ETFs) that deserve to be on every investor's radar screen.
Semiconductor stocks are cyclical
Semiconductors are the brain in electronic devices. Chips are used in a wide variety of products in computers, telecommunications, gaming, transportation, military systems and healthcare. They usually support technological innovation. As a result, semiconductor company shares usually act as a bubble for the technology sector as a whole.
Note, however, that the semiconductor industry is cyclical. Revival is taking place during periods of high demand. There may also be supply shortages, leading to higher prices and revenue growth. So, the profits of chip companies can drop and flow dramatically. It is never easy to know if the downside of a particular cycle may take longer than previously expected.
For most semiconductor companies, China is both a consumer and a supplier. China consumes more than 50% of all semiconductors made worldwide. In addition, many U.S. technology companies have factories in China or use Chinese companies in their supply chains. For example, in 2018 and 2019, pressures like the U.S.-China trade war weighed on the sector's prospects.
Currently, the current health and economic environments in the US and worldwide present a range of uncertainties. In the meantime, we are entering a busy profit season. As a result, given the recent stellar rise in prices of many semiconductor stocks, there is likely to be short-term volatility and profit taking in the sector.
But as new frontiers in technology – such as the Internet of Things (IoT), Artificial Intelligence (AI), autonomous driving, and 5G – are developed, we are optimistic about the future of the semiconductor industry.
With that in mind, here are two semiconductor ETFs that could be suitable for long-term portfolios:
1. iShares PHLX Semiconductor ETF
Current price: $ 276.38
52-week range: $ 167.79- $ 288.05
Current dividend yield: 1.1%
Expense ratio: 0.46% per year, or $ 46 on an $ 10,000 investment
As one of the largest semiconductor ETFs, the iShares PHLX Semiconductor ETF (NASDAQ 🙂 is a cap-weighted fund tending towards the largest semiconductor stocks. The reference index is the SOX.
The ETF currently has 30 interests. NVIDIA (NASDAQ 🙂 Qualcomm (NASDAQ 🙂 and Texas Instruments (NASDAQ 🙂 are more than 24% of the list of the fund.
The lagging P / E and P / B ratios are 28.18 and 5.75, respectively. The 1.24 beta means that SOXX is more volatile than the wider market. Therefore, short-term traders can be cautious as prices are often choppy.
Many semiconductor stocks will report gains in the coming weeks. Shortcomings in their basic statistics or even a possible warning from one of the large caps for future quarters can affect the overall ETF. Long-term investors may consider buying the dips.
Investors who watch short-term technical charts should be aware that profits can be made around the corner, which could potentially lead to a fall to the USD 260 or lower level.
2. SPDR S&P Semiconductor ETF
Current price: $ 115.08
52-week range: $ 68.95- $ 120.95
Current dividend yield: 0.46%
Expense ratio: 0.35% per year, or $ 35 on an investment of $ 10,000
The SPDR® S&P Semiconductor ETF (NYSE 🙂 is an equal weight fund, making it potentially suitable for investors looking for exposure to mid- and small-cap semiconductor names. The fund has 36 holdings, the largest of which is SunPower (NASDAQ 🙂 just 3.75%. Other stocks held include NVIDIA and Marvell Technology (NASDAQ 🙂 .
The lagging P / E and P / B ratios are 28.19 and 4.36, respectively. The beta of 1.34 means that the XSD is also more volatile than the wider market.
Due to the price hike in recent months, a drop to the USD 105 level is likely. Long-term investors may view such a drop in price as an opportunity to go long on the ETF.
