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Disappointing earnings and poor guidance from the likes of Microchip Technology Inc. (NASDAQ: MCHP) and Novellus Systems, Inc. (NASDAQ: NVLS) this week have cast a very dark shadow on semiconductor companies going into earnings season.  Despite those two companies dragging down the segment as a whole, there are actually some cheap valuations ahead in the sector.  We have laid out the numbers for shares of the following: Analog Devices Inc. (NYSE: ADI); Applied Materials Inc. (NASDAQ: AMAT); Advanced Micro Devices, Inc. (NYSE: AMD); Cirrus Logic Inc. (NASDAQ: CRUS); Intel Corporation (NASDAQ: INTC); SanDisk Corp. (NASDAQ: SNDK); Texas Instruments Inc. (NYSE:  TXN); Xilinx Inc. (NASDAQ: XLNX).

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