24/7 Wall St.

Sterne Agee’s Vijay Rakesh has advised that the significant semiconductor pullback from the end of April is a huge buying opportunity and he has reiterated his top picks. He also analyzed Taiwan’s May data, noting a stable supply chain despite macro concerns as “Another year, another summer slowdown with macro concerns on Europe.”

Rakesh noted, “While we did not hear much change in outlook from the companies in the Semi group through multiple conferences in May, there has been some cautious IT commentary. Nonetheless, as usual, semi stocks have corrected 25-35% while the SOX is down 20%+. As in 2010 and 2011, we believe we could have a rally into year-end from these depressed levels, as key valuations approach 2010-2011 inflection levels and fundamentals better. If not the bottom we should be fairly close.”

The report assumes that the world is not coming to an end, which is the case with any current research trying to discount the woes of Europe, and Rakesh believes that the sell-off should be a buying opportunity. His potential shopping list includes the following: QUALCOMM Incorporated (NASDAQ: QCOM); Avago Technologies Limited (NASDAQ: AVGO); Analog Devices, Inc. (NASDAQ: ADI); RF Micro Devices Inc. (NASDAQ: RFMD); Applied Micro Circuits Corporation (NASDAQ: AMCC).  The firm is also taking a second look at the Memory players of Micron Technology Inc. (NASDAQ: MU) and SanDisk Corporation (NASDAQ: SNDK).

As far as what the firm calls the exceptions for 2012… “Another Summer, another repeat of Euro Concerns – With the 20%+ SOX pullback, overall P/B and P/S valuations below, at 2010-11 inflection levels… What is different? – Unlike the last two years, this year we are seeing some profit and revenue warnings from the Euro market exposed companies. Also, unlike the last two years, the inventory refill is done, but also global demand is incrementally better, and companies better positioned.”

24/7 Wall St. has been looking at the same group of chip stocks and others tied to the sector.  The valuations do look low and the pullbacks have been strong,  The problem is that summer can be a very challenging time to buy chip stocks.

JON C. OGG