More Caution Ahead in Top Semiconductor Companies

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When the major stock market indexes are trading at or near all-time highs, it doesn’t mean that every stock or sector is enjoying the ride higher. In fact, many sectors and companies might even be down and out. In September of 2018, the semiconductor industries are looking down and out, and many of the group’s leaders have seen a serious bleeding down from their highs over the course of this year.

The 24/7 Wall St. top analyst upgrades and downgrades were numerous, but one issue that stood out was the continued weakness and caution seen in semiconductor stocks. The investing community has been considering how it wants to be position in late 2018 and heading into 2019, and there are many factors to consider that may create uncertainty for the chip companies.

The midterm elections are in roughly six weeks, and there is the fear that tariffs with China are turning into an outright trade war. Also, investors by and large have not seen as much reward from buying each sell-off as had been the trend for the few years prior to 2018. Most investors who have used the “value investor” approach, using low price-to-earnings (P/E) ratios, in chip stocks historically have not done well trying to invest in the sector on the way down.

The quest to find new investing ideas for investors and traders alike often comes with some negative analyst calls, and the semiconductors companies have seen their share of analysts downgrading their shares. If they have not downgraded them, the analysts have often slashed earnings and revenue expectations.

Additional commentary has been added on these analyst calls, and the consensus analyst price targets and other valuation metrics are from the Thomson Reuters sell-side research service. These were five of the top analyst calls showing caution in the semiconductor stocks from Tuesday, September 24, 2018.

Intel Corp. (NASDAQ: INTC) was downgraded to Underperform from In-Line at Raymond James. Intel closed up 0.5% at $46.91 on Monday, and it has a 52-week range of $37.00 to $57.60 and a consensus analyst target price of $55.81. The downgrade mentioned numerous headwinds that are likely to impact longer-term growth expectations and profitability for Intel. Also worth noting was the CPU shortage at Intel being rather well-known and customers are using processors and chips from Intel’s rivals to fill the gap. Intel was trading down 1.5% at $46.20 after the opening bell on Tuesday.

Microchip Technology Inc. (NASDAQ: MCHP) might not have seen two downgrades, but it was started with a mere Sector Weight rating at KeyBanc Capital Markets. The one downgrade came from Raymond James, which lowered its rating to Market Perform from Outperform. Microchip Technology shares closed up 0.5% at $82.30 on Monday, and they have a 52-week trading range of $78.33 to $104.20. The consensus target price is $113.31. The shares were down 3.4% at $79.50 Tuesday morning.

ON Semiconductor Corp. (NASDAQ: ON) saw two less than aggressively positive analyst calls on Tuesday. It was started as Sector Weight at KeyBanc Capital Markets, but Raymond James lowered its rating to Market Perform from Outperform. The stock closed up 0.3% at $19.10 on Monday, in a 52-week range of $17.60 to $27.10. The consensus analyst target is $27.34. The shares were down 3.7% Tuesday morning to $18.38.

Qualcomm Inc. (NASDAQ: QCOM) was started as Sector Weight at KeyBanc Capital Markets. The stock closed up 0.2% at $73.58 on Monday, and it has a 52-week range of $48.56 to $76.50 and a consensus target price of $71.86. The mobile chip giant’s shares were down only 0.6% at $73.12 Tuesday morning, perhaps being helped on news that it has accused Apple of stealing secrets under a software licensing contract in order to help Intel’s engineers as part of the longstanding fight between Qualcomm and Apple.

Texas Instruments Inc. (NASDAQ: TXN) may have increased its dividend and set another large stock buyback last week, but KeyBanc Capital Markets started the semiconductor giant with only a Sector Weight rating on Tuesday. Shares closed down 0.2% at $109.80 on Monday, and they shares were down 2.3% at $107.29 on last look. Texas Instruments has a 52-week range of $87.45 to $120.75 and a consensus target price of $124.70.