The semiconductor industry has been long known as a ‘boom-bust’ industry.
A. What does a ‘boom-bust’ business cycle imply?
Here is Investopedia’s definition of ‘boom-bust,’ for a large diversified economy.
The boom and bust cycle is a key characteristic of today’s capitalist economies.
- During the boom the economy grows, jobs are plentiful and the market brings high returns to investors.
- In the subsequent bust the economy shrinks, people lose their jobs and investors lose money.
- Boom-bust cycles last for varying lengths of time; they also vary in severity.
Since the mid-1940s, the United States has experienced 12 boom-and-bust cycles.
B. Does this ‘boom-bust’ definition apply to the current semi chip industry?
Are the high returns available to investors in semiconductor companies over the last few years -- about to bring an end to the cycle -- by causing too many capital investment dollars to flow into this growth industry?
Not according to the latest Zacks Industry Ranks, offered up by the small-cap Electronics-Manufacturing Machinery industry.
This 12-company strong semiconductor chip supplier niche is currently ranked #11 out of 265 industry groups we construct. In recent weeks, there have been 6 earnings upgrades and only 2 downgrades across the space.
That’s the top 4%. By focusing on the top stocks within the top 50% of Zacks Ranked Industries, you can dramatically improve your stock picking success.
The YTD return for these stocks summed to +13.4% versus +3.1% for the S&P500 itself. ‘Nuff said on the value of this idea!
Note: I did this piece on May 31st, meaning five full months are in the 2018 bin.
However, unless you are an electrical engineer, these are NOT businesses you are likely to be aware of. Please read the entire business descriptions I supply below closely. Only then can you discern what they do.
Each of the following stocks holds a current Zacks #1 Rank (STRONG BUY) rating. These are the only three names, out of 12 in this industry, currently worthy of that title. There are five more at #2 (BUY); making a stellar 8 out of 12 stocks fall in the BUY zone.
That means this: managers in this group are easily running their businesses more and more profitably in recent months.
C. How to sum up the situation?
If the current tech-led ‘boom-bust’ cycle does come to grief -- you might think it comes to grief in 2019 or even later -- with a reference to this semiconductor supply industry group.
Three Top Zacks #1 Rank (STRONG BUY) Stocks—
Rudolph Technologies (RTEC - Free Report) : This is a $1.0B market cap stock. The long-term Zacks VGM score is B, led by a B in the Growth score. The Price-to-Earnings-Growth (PEG) ratio is 1.73.
Rudolph Technologies is a worldwide leader in the design, development, manufacture and support of high-performance process control metrology, defect inspection and data analysis systems used by semiconductor device manufacturers.
Rudolph provides a full-fab solution through its families of proprietary products that provide critical yield-enhancing information, enabling microelectronic device manufacturers to drive down costs and time to market. Rudolph has enhanced the competitiveness of its products in the marketplace by anticipating and addressing many emerging trends driving the semiconductor industry's growth.
Rudolph's strategy for continued technological and market leadership includes aggressive research and development of complementary metrology and inspection solutions.
Ultra Clean Holdings UTCC: This is a $685M market-cap stock. The long-term Zacks VGM score is A, with an A for Value and an A for Growth. The Price-to-Earnings-Growth (PEG) ratio is a low, low 0.54.
Ultra Clean is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries.
Ultra Clean offers its customers an integrated outsourced solution for gas delivery systems and other subassemblies, improved design-to-delivery cycle times, component neutral design and manufacturing and component testing capabilities.
Ultra Clean's customers are primarily original equipment manufacturers for the semiconductor capital equipment, flat panel, solar and medical device industries. Ultra Clean is headquartered in Menlo Park, California.
Veeco Instruments (VECO - Free Report) : This is a $548M market-cap stock. The long-term Zacks VGM score is a poor D.
Veeco Instruments Inc. is engaged in the design, development, manufacture and support of thin film process equipment, primarily sold to make electronic devices.
Veeco's process equipment solutions enable the manufacture of LEDs, power electronics, hard drives, MEMS and wireless chips. They are the market leader in MOCVD, MBE, Ion Beam and other advanced thin film process technologies.
The company's portfolio of technology solutions focus on market areas, including Lighting, Display & Power Electronics; Advanced Packaging, micro-electromechanical systems (MEMS) & radio frequency (RF); Scientific & Industrial, and Data Storage.
The company's System products include Metal Organic Chemical Vapor Deposition Systems, Precision Surface Processing Systems, Ion Beam Etch and Deposition Systems, Molecular Beam Epitaxy Systems, and Other Deposition and Industrial Products.
The company's original name Veeco stood for Vacuum Electronic Equipment Company.