With warnings having started from key leaders in the realm of chip stocks, the question is whether or not you can trust the analysts and the consensus upside.  24/7 Wall St. has gone in and evaluated the leaders in each aspect of the semiconductor sector to see where there is value and where the risks currently lie.  We evaluated the following chip companies: Intel Corporation (NASDAQ: INTC); QUALCOMM Incorporated (NASDAQ: QCOM); Texas Instruments Inc. (NASDAQ: TXN); Broadcom Corp. (NASDAQ: BRCM); NVIDIA Corporation (NASDAQ: NVDA); Advanced Micro Devices, Inc. (NYSE: AMD); Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM); Freescale Semiconductor Holdings (NYSE: FSL); SanDisk Corporation (NASDAQ: SNDK); Applied Materials Inc. (NASDAQ: AMAT); Lam Research Corporation (NASDAQ: LRCX); and Altera Corporation (NASDAQ: ALTR).

In a further effort to show just how much these have sold off, we have shown the moves in the following key semiconductor ETFs: Market Vectors Semiconductor ETF (AMEX: SMH); SPDR S&P Semiconductor (AMEX: XSD); and the ProShares Ultra Semiconductors (AMEX: USD).  We have also run the same screens in retail, gold and silver miners, conglomerates, industrial giants, and major oil companies with links to those at the end of this article. Here is the screening of value and upside in the chip giants:

Intel Corporation (NASDAQ: INTC) traded at $26.60 with a market value of $129 billion.  The consensus target price for the king of PC processors from Thomson Reuters is $29.75 and the 52-week trading range is $19.16 to $29.27.  This DJIA component’s most recent yield was listed as 3.2%. Intel’s implied upside to the consensus target is 16% and it is worth noting that the consensus target is just above the 52-week high.

QUALCOMM Incorporated (NASDAQ: QCOM) traded at $57.78 with a market value of $99 billion.  The consensus target price from Thomson Reuters is $71.92 and the 52-week trading range is $45.98 to $68.87.  The CDMA giant yields about 1.7% after dividend hikes. The implied upside to the consensus target is just under 25% but we would note that the consensus target is still over $3.00 above the 52-week high.

Texas Instruments Inc. (NASDAQ: TXN) traded at $29.15 with a market value of $33.4 billion.  The consensus target price from Thomson Reuters is $35.80 and the 52-week trading range is $24.34 to $35.30.  The yield here is about 2.3%. TI’s implied upside to the consensus target is just under 23% and that target is still just above its 52-week high.

Broadcom Corp. (NASDAQ: BRCM) traded at $31.85 with a market value of $17.5 billion.  The consensus target price from Thomson Reuters is $43.21 and the 52-week trading range is $27.59 to $39.66.  Broadcom has a paltry yield of only about 1.2%, but its implied upside to the consensus target is about 35%.  Be advised that this consensus target is almost $4.00 above the 52-week high.

NVIDIA Corporation (NASDAQ: NVDA) trades at $12.25 and its market cap is just over $7.5 billion. This graphics processor leader has a consensus target price of $16.64 and the 52-week trading range is $11.47 to $20.05.  NVIDIA pays no dividend and that is something which it should consider changing since it has about $3 billion in cash and liquidity. Its implied upside to the consensus target is about 35% and that consensus target price is well under its 52-week high.

Advanced Micro Devices, Inc. (NYSE: AMD) trades at $6.06 and its market cap is only $4.25 billion despite it being so actively traded. The consensus target price for this distant number-2 in PC processors is $8.55 and the 52-week trading range is $4.31 to $8.71.  AMD has no dividend due to very spotty earnings. Its implied upside to the consensus target is more than 41% if you trust the analysts here and its target price is just under its 52-week high.

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) currently trades at $14.15 for its ADR and Yahoo! Finance shows its market value being about $73 billion.  The consensus target price from Thomson Reuters is $16.70 and the 52-week trading range is $10.75 to $16.15.  The yield is listed as roughly 2.9%. TSM’s implied upside to the consensus target is 18% and the consensus target is about 4% above the 52-week high.

Freescale Semiconductor Holdings (NYSE: FSL) has been battered since its IPO and shares now trade at $9.75 with an implied market value of $2.4 billion.  This private equity backed chip outfit’s consensus target price from Thomson Reuters is all the way up at $17.92 and the 52-week (less than one-year actually) trading range is $9.43 to $20.97.  Freescale has NO DIVIDEND, which makes it stand out against the peer group now.  Still, if you trust the analysts here the implied upside to the consensus target is a whopping 83%!  Trust is hard to come by here, particularly for a company where backers will sell shares along the way into strength.

SanDisk Corporation (NASDAQ: SNDK) trades around $32.50 and its market value is about $7.9 billion.  The king of flash memory’s consensus target price from Thomson Reuters is $44.46 and the 52-week trading range is $31.34 to $53.46.  SanDisk has no current dividend, something which may need to change down the road considering that this is not anywhere close to a new company.  Its implied upside to the consensus target is 37% but the company has had two warnings.

Applied Materials Inc. (NASDAQ: AMAT) currently trades at $10.55 and its market value is $13.6 billion.  The consensus target price from Thomson Reuters is $13.65 and the 52-week trading range is $9.70 to $13.94.  Applied now yields about 3.4% and its implied upside to the consensus target is about 29%.

Lam Research Corporation (NASDAQ: LRCX) is worth more than $4.5 billion today but it is acquiring Novellus Systems, Inc. (NASDAQ: NVLS) for about $3 billion in stock, so it will soon be larger.  Its shares trade at $38.00, its consensus target price is $48.53 and the 52-week trading range is $34.81 to $48.88.  Lam Research pays NO DIVIDEND now and its implied upside is almost 28%.

Altera Corporation (NASDAQ: ALTR) currently trades at $33.90 and its market value is $10.9 billion.  The consensus target price from Thomson Reuters is $41.00 and the 52-week trading range is $30.39 to $48.91.  Altera has a dink yield of only about 1% and we expect a dividend hike in the coming weeks or months. Its implied upside to the consensus target is about 21% and this one is well off highs and the target is almost $8.00 under its 52-week high.

Market Vectors Semiconductor ETF (AMEX: SMH) has undergone a total transformation since it is no longer the Semiconductor HOLDRs.  At $31.25 its range since the change is listed as $28.86 to $36.17.  This ETF is said to have assets of almost $400 million, but that changes based upon inflows and outflows on top of the change in the price.

SPDR S&P Semiconductor (AMEX: XSD) ETS is now one of the longest ETF in chips since the HOLDRS changed.  At $43.50 now, its 52-week range is $40.09 to $59.85 and it still has only about $44 million in assets.  This one peaked in January and the mix of components has made it more volatile than many leaders.  This ETF would now have to rally by more than 37% to hit its 52-week high again.

ProShares Ultra Semiconductors (AMEX: USD) uses leverage of 2-times for its semiconductor trading, so this is one where it will feel just like getting your fingernails ripped out when your timing is wrong. At $33.50, this leveraged ETF has a 52-week range of $26.18 to $46.46. It would have to rally about 39% to hit its 52-week high again.

As you can see, the semiconductor and chip leaders have now pulled back substantially from their highs seen throughout 2012.  The issue to consider is that Dell Inc. (NASDAQ: DELL) and Hewlett-Packard Co. (NYSE: HPQ) have confirmed that PC sales are slowing.  Some of this is due to Apple Inc. (NASDAQ: AAPL) and some of it is due to weakness in Europe, weak PC spending in the Americas, and a slowing of growth in the BRIC nations.  How the Microsoft Corporation (NASDAQ: MSFT) launch of Windows 8 will impact the PC refresh cycle ahead is now another wild card since PC sales guidance is looking softer than anticipated from just a couple of weeks ago.

We also want to warn investors to not just blindly trust the analysts in semiconductor price targets here.  Summer can be a brutal time for chip stocks.  The drop in the ProShares Ultra Semiconductors (AMEX: USD) during the summer of 2011 was about 40% and the drop from the 52-week high in 2011 to that end of summer trough was almost 50%.

The drop in the SPDR S&P Semiconductor ETF (AMEX: XSD) during the summer of 2011 was about 25%, but the drop from the peak in early 2011 here to the trough of late-summer was about 31%.

Summer is a very tough time to invest in chip stocks, and the question now is just how much the slowdown is going to continue taking out of chip stocks.  We would certainly avoid trying to play the game of trying to catch falling knives here, but these are all worth keeping an eye on for those inflection points where the valuations start to adequately discount the warning signs.

Gold & Silver Miners with the Most Upside Value  

Major Oil Companies with the Most Upside Value

Industrials with the Most Upside Value  

Conglomerates with the Most Upside Value

Retail Stocks with Upside 

Your email address

subscribe

terms and conditions

JON C. OGG

Intel said that its key fourth-quarter results “are expected to be below the company’s previous outlook due to hard disk drive supply shortages.”  The new fourth-quarter revenue target is $13.7 billion, plus or minus $300 million.  The prior target had been $14.7 billion, plus or minus $500 million.

Where this gets interesting is that Intel says personal computer sales will be up sequentially but that the worldwide PC supply chain is reducing inventories and microprocessor purchases as a result of hard disk drive supply shortages.  Analysts had been warning about this last week and before for both Intel and the rest of the PC and semiconductor chain.

Unfortunately, Intel said that it expects hard disk drive supply shortages to continue into the first quarter.  The current expectation is that there will then be a rebuilding of microprocessor inventories as supplies of hard disk drives recover during the first half of 2012.

The Semiconductor HOLDRs (NYSE: SMH) is trading down nearly 2% on the news out of Intel this morning, while Advanced Micro Devices, Inc. (NYSE: AMD) is down 2% at $5.42 right before the open.  Micron Technology Inc. (NASDAQ: MU) is down 2.2% at $5.76 in the pre-market.

Gross margin is now put at 64.5%, plus or minus 2%, versus the prior forecast of 65% (plus or minus 2%); non-GAAP gross margin is expected to be 65.5% (+/- 2%) versus a prior target of 66% (+/- 2%).

Intel also noted that its earnings and news quiet period will begin on December 16 and that its earnings will be released on January 19, 2012.

Shares of Intel had been at $25.01 and its 52-week trading range is $19.16 to $25.78.  The pre-market trading is showing a drop of 3.2% at $24.20.  The market had been given warnings of this but no one ever seems to want to admit that just because a sector is slowing and has high supply problems that a warning will still come.  Had more warnings from analysts (and chip peers) in recent days and weeks not been given out, then the reaction may have been far worse.

JON C. OGG

Shares are trading around $23.25 this morning, and its 52-week trading range is $18.90 to $23.96.  The consensus analyst price target is well above the year high and implies close to 10% upside to $25.55.  Intel of course also offers that high 3.6% dividend yield.

The obvious concerns have been about reports of slow demand in DRAM, slow PC sales, and more while the move so far in tablets and smartphones has not really yet included Intel.  It has also been surprising that shares are so close to a 52-week high.

Options traders are not exactly looking for the biggest price move today.  After looking at the closest put and call strike prices, it seems that options traders are only bracing for a move of up to $0.40 to $0.55 in either direction.

Intel’s stock chart has run into some resistance of late up around the $23.50 mark and it is about $2.00 lower where the moving averages come into play: $21.34 for the key 200-day moving average and $21.15 for the 50-day moving average.  We would also note that Intel was challenging the $20.50 level at the start of October.

After the report, we would be paying close attention to Microsoft Corporation (NASDAQ: MSFT) for the PC market and then we would be paying immediate attention to the Semiconductor HOLDRs (NYSE: SMH) and then that crazy triple-leveraged Direxion Daily Semicondctor Bull 3X Shares (NYSE: SOXL).

JON C. OGG

The report shows that the DDR3 2GB contract price stayed flat at an average $10.75, but the DDR3 4GB ASP did fall slightly by about 4.6% to $20.50 because DRAM makers were increasing shipment volumes. Also noted, “From the market perspective, benefiting from production cuts by Japanese and a number of Taiwanese manufacturers, the spot market continually saw price rebounds. While the increases only lasted a few short days at a time, the effects of supply-side production cuts were enough to present the depressed spot market with a chance to recover slightly.”

This showed that the difference between contract and spot unit price for DDR3 2Gb chips has shrunk to 12%.  And the DRAM maker hopes… “finally putting an end to the dismal DRAM price trend of the past few months.”

Here is how brutal the trend was… Since June, the DDR3 2GB contract price fell over 40% to a low of $10.50.  Sadly, this breaks the cash cost for the majority of DRAM makers.  On this front it was noted, “PC OEMs’ September inventory restocking has been much better than in the previous few months, causing 2GB contract price to stay flat. Although the market currently remains in a state of oversupply, production cuts across the board have improved the DRAM oversupply situation and eased the price decline.”  As a result, some DRAM manufacturers have started quoting higher spot prices.

Micron Technology Inc. (NYSE: MU), Americas home-grown DRAM giant, is up 3.3% at $7.09 and its 52-week range is $5.18 to $11.95.  Freescale Semiconductor Inc. (NYSE: FSL) has been a dismal memory IPO but even its shares are up 1.8% at $12.45 and the post-IPO range is $9.43 to $20.97.

MEMC Electronic Materials, Inc. (NYSE: WFR) makes silicon materials for chips (and for solar) and its shares are trading flat at $6.80 versus a 52-week range of $4.96 to $15.04.  Unfortunately, MEMC seems to be lost.

DRAM is certainly not flash memory… Still, we cannot ignore that what may be good news for the DRAM players could ultimately end up being some of the same for flash makers.  A smaller independent DRAM and SRAM maker Integrated Silicon Solution, Inc. (NASDAQ: ISSI).  Its shares are up 1.6% at $8.56 and the 52-week trading range is $7.01 to $11.79.  SanDisk Corp. (NASDAQ: SNDK) is up 3% at $42.19 and its 52-week range is $32.24 to $53.61. There is also Spansion Inc. (NASDAQ: CODE) in NOR Flash and it is only up 0.5% at $14.08 with a 52-week range of $12.82 to $21.60.

Texas Instruments Inc. (NYSE: TXN) is also on many aspects of memory and components under the semiconductor sector.  Despite a cautious outlook given recently, TI’s stock is up 0.7% at $26.84 and the 52-week trading range is $24.11 to $36.71.

The Semiconductor HOLDRs (NYSE: SMH) ETF is up 0.7% at $29.80 today and the 52-week range is $25.87 to $36.99.  SPDR S&P Semiconductor (NYSE: XSD) is less liquid as an ETF, but it has a better representation of component weightings.  Its shares are up 0.8% at $47.08 against a 52-week range of $41.71 to $64.06.

When we covered our Technology Value Series in August, we warned about the potential warnings or lowering of estimates.  That has also come about.  We also noted that the calendar may work against the sector into September, but then the calendar is generally believed to be favorable for the sector on a historic basis.  We are now almost in the second-half of September.

We strongly suggest for traders and investors to understand all of the nuances and details of these leveraged ETFs, but there are two to consider if you truly believe that DRAM makers are going to have a marked improvement.  The 200% mover is the ProShares Ultra Semiconductors (NYSE: USD) exchange traded product and the 300% mover is the Direxion Daily Semicondctor Bull 3X Shares (NYSE: SOXL).  You are on your own on those.

Unfortunately, some of the market strength seen his morning is coming out and these winners are now not up as much as they were in the first 30 minutes of trading.

JON C. OGG

At least one issue is exposure to Apple. None of these funds includes significant exposure to what has been the hottest stock going for the past couple of years. The PowerShares QQQ (NYSE: QQQ), in contrast, holds more than 12% of its assets in Apple stock. QQQ is up about 30% over the past 12 months and managed to fall by about -0.5% in the past week. SOXX lost -6.3% of its NAV last week and PXQ was down -6.09%. See “SOXX” chart below.

IGN holds nearly 9% of its assets in Cisco Systems, the largest holding of any ETF in the tech sector. PXQ holds about 4.5% of assets in Cisco and QQQ holds about 3.5%. Cisco has lost about -30% of its value in the past 12 months.

Exposure to semiconductor stocks is high in all these funds, which is perhaps why they track the Semiconductor HOLDRS (NYSE: SMH) so closely. Semiconductor sales are not expected to be robust this year, and general economic conditions indicate that consumer spending on new computer gear could fall even more. Sales are shifting to smartphones and, to some degree, tablets.

As we’ve noted elsewhere today, demand for tech products eventually comes down to consumer spending.  If a company does not sell something that fires up consumers, any gains are likely to be temporary.

Could there be some value lurking in these funds? Trailing P/E for all six ranges from 13 for SOXX and SMH to 26 for PXQ. It’s hard to say that any of the six is oversold, and PXQ looks to be overbought.

As consumer spending starts to slow, and business investment as well, the tech sector could have a couple of tough quarters ahead.

Paul Ausick

This is a much different list from our true tech-value stocks for the rest of this year.  We have identified how much these shares have dropped from their highs, but we have also looked at basic data concerning a forward P/E ratio for next year’s earnings and broken out the return on equity from Finviz.  When you look at the consensus analyst price target, the companies look even cheaper in most cases.  There is one caveat that has to be considered and that is that analysts will have to lower estimates through next week for the year ahead and that will of course change the valuations.  We are not looking for any immediate gains solely based on value.  The idea is to identify those situations where the drop has been enough and where the bad news may be close to priced in ahead of time.

Analog Devices Inc. (NYSE: ADI)  recently closed at $36.56, down 15% from its 52-week high; about 10% of that loss has been in recent days. The company has a forward price to earnings multiple of 12 and a 27% return on equity (ROE).  Analysts still have a consensus target north of $45.00 versus a 52-week high of $43.28.

Applied Materials Inc. (NASDAQ: AMAT) recently closed at $12.64, down 26% from its 52-week high. The company has a forward price to earnings multiple of 9.2 and a 20.5% return on equity (ROE). Analysts have a consensus target of about $15.75.  As the big daddy of chip cap-ex, the Novellus news hit here as well.  The forward estimates are almost always low for Applied, so there is no reason to jump the gun thinking that large earnings multiple expansion is heading this way.  In fact, value is often a value trap here in Applied Materials and in many cap-ex stocks in the sector.

Advanced Micro Devices, Inc. (NYSE: AMD) recently closed at $6.34, down 32% from its 52-week high. The company has a forward price to earnings multiple of 8.4 and a 61% return on equity (ROE).  The big problem with AMD remains relevance.  This is the turnaround that just never seems to really turn around.  The math has looked “cheap for a while” and the value trap argument seems to prevail.

Cirrus Logic Inc. (NASDAQ: CRUS) recently closed at $16.30, down well over 30% from its 52-week high and almost $10 shy of its $26.00 consensus analyst target. The company has a forward price to earnings multiple of 10 and a return on equity (ROE) of 62%.  With a $1.1 billion market cap, our biggest concern is that it is in the class of companies which could have “big hits and bad misses” when it comes to living up to earnings expectations.

Intel Corporation (NASDAQ: INTC) recently closed at $22.48, down just over 5% from its 52-week high. The company has a forward price to earnings multiple of 9.4 and a return on equity of 27%.  Intel has recently embarked on new initiative from tablets to security and to embedded systems.  Unfortunately, Intel falls into the same “tech utility” category and its nature is now entirely different from in the past.

SanDisk Corp. (NASDAQ: SNDK) recently closed at $41.18, down 23% from its 52-week high. The company has a forward price to earnings multiple of 8.4 and a 25% return on equity.  The reason SanDisk trades with a cheap multiple is because the company’s leadership in flash memory is subject to great swings throughout the business cycle.  Another issue is that when SanDisk is in the middle of its 52-week range like this it offers a technical no-man’s land.  This is one that may not be dirt cheap value nor a value trap.

Texas Instruments Inc. (NYSE:  TXN) recently closed at $31.00, down over 15% from its 52-week high. The company has a forward price to earnings multiple of 11.2 and a 31% return on equity.  With a large acquisition in the hopper, all we can do is consider the “value” on a standalone basis with serious caveats.

Xilinx Inc. (NASDAQ: XLNX) recently closed at $33.92 versus a 52-week high of $35.42, still well under 10% from highs.  The company has a forward price to earnings multiple of 14 and a 28% return on equity.  Unfortunately, this one just does not jump out in the screens other than its return on equity.

So, here are the comparable issues to consider.  Microchip Technology Inc. (NASDAQ: MCHP) is now down about 20% from its 52-week highs, while Novellus Systems, Inc. (NASDAQ: NVLS) was down more than 20% from its 52-week highs.  As you can see, some chip stocks named here are down a similar amount but others still have a way to go.  It is very possible that “value” in semiconductors may still be more of a value trap until things normalize.

The ETF that rules in chipland is the Semiconductor HOLDRs (NYSE: SMH).  With a price of $32.88, its 52-week trading range is $24.14 to $39.99.  An 11% discount from the 52-week high may entice some buyers, but there is still room to argue that this highly unbalanced ETF may not be close enough to “cheap” as of yet as Intel and Texas Instruments both have more than 20% of the weighting here.

Earnings season is upon us.

Jon Ogg & Jim Berdou

Novellus Systems, Inc. (NASDAQ: NVLS), the chip equipment and cap-ex player, managed to beat earnings but revenues were soft as the sales were down about 15% to $350.2 million with earnings coming in at $0.79 EPS.  We had estimates from Thomson Reuters of $0.76 EPS and $352.3 million.  That is not such a bad miss on revenues in the current climate, but Novellus said that bookings were down some 25% from the first quarter at $312 million and shipments fell by about 5% to $376.9 million.  The company said that its customers remain cautious and it also expects bookings to continue to fall as PC shipments are soft.  Its guidance for the coming quarter is now $0.60 to $0.75 EPS on $300 to $340 million in revenues, but Thomson Reuters had estimates of $0.86 EPS and $359.7 million in revenues.  Novellus is only a $3.5 billion market cap and its shares are down 5.6% at $33.75 in the after-hours.  Here is how peers in chip cap-ex are being hit:

• KLA-Tencor Corporation (NASDAQ: KLAC) -3% at $40.99 in after-hours $7B market cap);
• Lam Research Corporation (NASDAQ: LRCX) -2.5% at $43.76 in after-hours ($5.5B market cap);
• Applied Materials Inc. (NASDAQ: AMAT) -0.5% at $12.90 indications ($17B market cap).

Microchip Technology Inc. (NASDAQ: MCHP) confessed after the close that its sales be about $373.3 million for the quarter, down about 1.5% sequentially and down from a prior forecast for a gain of 1% to 5% sequentially, as its sales activity did not progress as well as expected.  Non-GAAP earnings were put at $0.53 to $0.55 EPS rather  than the prior range of $0.58 to $0.62 EPS.  More importantly, the company is seeing a broad weakness due to auto businesses and due to an inventory correction after Japan’s quake and tsunami.  The company also cited a weaker global economic condition and less-robust computing sector sales. The company is now targeting the September quarter sales to be lower sequentially by the low- to mid-single digits.  Microchip Tech is a $7 billion market cap company and its shares are down by 7.4% at $34.70 in the after-hours.  Here is how some larger peers in chipland are holding up:

• Texas Instruments Inc. (NYSE: TXN) -1.6% at $31.90 ($37B market cap);
• Analog Devices Inc. (NYSE: ADI) -2.6% at $37.52 ($11.5 billion market cap).

On a broader note, the Semiconductor HOLDRs (NYSE: SMH) is down about 1.5% at $33.66 in the after-hours session and that is after a 1.4% drop in regular trading today.  Its 52-week range is $24.14 to $36.99.

These two companies today will not likely dominate earnings season entirely for technology and chip stocks, but they are early reporters and the comments may be interpreted in other aspects of tech as well.  Some of the larger companies may not be seeing the same news.  Still, these were the first reports for earnings season in the world of semiconductors and it is setting at least an overall cautious tone for the sector.

JON C. OGG

The funds that follow the tech sector should also be gaining some ground, and we’re going to look at a few: the Technology Select Sector SPDR (NYSE: XLK), the PowerShares QQQ (NYSE: QQQ), the Internet HOLDRS (NYSE: HHH), the Semiconductor HOLDRS (NYSE: SMH), the Direxion Daily Technology Bull 3X Shares (NYSE: THX), the ProShares UltraPro QQQ (NYSE: TQQQ), and the Direxion Daily Semiconductor Bull 3X Shares (NYSE: SOXL).

We have to wonder if this summer is going to be a repeat of last summer.  The markets started out weak because Greece was rioting, the economic recovery was softening, inflation was a concern.  From the end of April we saw a drop up to around the 4th of July weekend.  Then came a bounce, but the markets drifted lower into August before the big move higher came.  It could be Groundhog Day, or it could just be a trap.

The PowerShares QQQ ETF (NYSE: QQQ) is the largest tech fund, with nearly $22 billion in assets. Nearly the entire tech component of the S&P 500 is represented in this fund. The growth driver in the tech sector for the last six months or so has been smartphones, and the next big thing is likely to be cloud computing although smartphone demand continues to be strong. The fund holds a 3-star rating from Morningstar.

The Technology Select Sector SPDR ETF (NYSE: XLK) is holds total assets of about $7.3 billion. The Morningstar analyst notes that this fund and QQQ demonstrate a 98% correlation over the past five years. XLK does not include exposure to non-tech stocks in consumer discretionary, health-care, biotech, or industrial assets, as does QQQ. The fund carries a 3-star rating from Morningstar.

The Internet HOLDRS (NYSE: HHH) does not track an index and only deletes stocks from its holdings when a company is sold or folds. It never adds companies. Its total assets amount to about $128 million, and just three companies account for more than 75% of the fund’s assets: Amazon, E-bay, and Yahoo. The fund is not yet rated by Morningstar.

The Semiconductor HOLDRS (NYSE: SMH) holds assets totaling about $515 million in just 18 stocks. The fund’s top 10 holdings account for 86% of its assets. Like HHH, stocks are only deleted, never added. As semiconductor book-to-build ratios improve to round 1, investors typically get more interested in SMH. Morningstar does not rate this fund.

The Direxion Daily Technology Bull 3X Shares ETF (NYSE: THX) is a triple-leveraged that seeks daily results of 300% the price performance of the Russell 1000 Technology Index. It’s largest stock holdings are virtually identical with QQQ and XLK, although in much smaller weightings. During its first year of operation, 2009, the fund returned 245%. Last year, returns totaled 21.28%, and so far this year returns are given as 6.81%. The fund is unrated by Morningstar.

The the ProShares UltraPro QQQ ETF (NYSE: TQQQ) is another triple-leveraged fund seeking to match the daily results of the Nasdaq 100 index. Its one-year return is 69.7%, and its year-to-date return is 1.27%. The fund’s assets total about $124 million and it is not yet rated by Morningstar.

The Direxion Daily Semiconductor Bull 3X Shares (NYSE: SOXL) is another triple-leveraged fund, this time seeking 300% of the price performance of the PHLX Semiconductor Stock Index. The fund began operation in early 2010, and its trailing return is 20.42%. Year-to-date annual return is 14.52%. The fund is not rated by Morningstar.

When you look at the current share prices for these funds compared with 200-day moving averages, you notice that HHH has taken a solid bounce to gain about 6.8% since mid-June. The QQQ and XLK funds are finally pushing through their 200-day moving averages, but have yet to establish a solid foothold above that mark. SMH has spent just one full day above it’s 200-day moving average since mid-June, but it appears that it might do it again today.

Of the three leveraged funds, only TQQQ has managed to punch above its 200-day moving average since mid-month, and that is only today. TYH and SOXL both passed through that mark on their way down in early June and haven’t recovered yet.

The leveraged bull funds have some room to run, but haven’t yet taken advantage of it.  Last summer saw the same sort of start

Paul Ausick

TI specifically noted that the recent earthquakes and tsunami in Japan, disruptions and increased costs of production, disruptions in its supply chain, and reduced or delayed demand from customers “could cause actual results to differ from the expectations of TI or its management.”  In short, several issues at once hit.  Mostly, it is Nokia Corporation (NYSE: NOK) after its warning… Too bad Nokia’s problems are not short-lived.

Revenue was guided down to $3.36 billion to $3.5 billion, down from a prior range of $3.41 billion to $3.69 billion.  Earnings were guided down to $0.51 to $0.55 versus a prior range of $0.52 to $0.60.  Thomson Reuters has estimates of $0.57 EPS and $3.55 billion in revenues.  As a reminder, when companies lower guidance for one quarter, analysts automatically trim the yearly estimates by the same amount (if not more for later quarters).

Texas Instruments Inc. (NYSE: TXN) closed down 1.8% at $32.67 and shares are down almost 5% at $31.12 in the after-hours session.  National Semiconductor Corporation (NYSE: NSM) is only down a couple cents at $24.57 since it is being acquired.

Intel Corporation (NASDAQ: INTC) is trying more and more to get into mobile chips and its shares fell 1% today and are down another 0.5% at $21.71 in the after-hours.  Broadcom Corporation (NASDAQ: BRCM) was down 1% today and its shares are down 0.4% at $33.76 in the after-hours.  The big drop where TI has a big weighting is in the Semiconductor HOLDRs (NYSE: SMH), where shares fell 2.1% to $33.55 today and where shares are down another 0.5% at $33.08 in the after-hours against a 52-week range of $24.14 to $36.99.

JON C. OGG

This earnings report is going to likely have an impact on the Semiconductor HOLDRs (NYSE: SMH) and the SPDR S&P Semiconductor (NYSE: XSD) as Intel is such a large weighting in these ETFs.

Our concerns for Intel are the same as elsewhere… a slowing PC-sales market and the growth of tablets that so far are skipping Intel processors.  The good news here is that Intel is already trading as though it has to warn as it priced at about 9.5-times 2011 estimates.  Still, the call for an earnings warning has been out for over a week now.

Options traders appear to be bracing for a move of only about $0.50 to $0.60 going into earnings.  With this report being more controversial, we could easily see options traders having this one wrong today.  Analysts still have a price target objective of nearly $25.00 per share.

We would further note that the chart has a lot of overhang here per the StockCharts.com chart.  The 200-day moving average is at $20.24 and Intel’s shares were not able to hold up above the 200-day moving average in mid-March.  Shares are around $19.75 and the 52-week range is $17.60 to $24.25.

JON C. OGG