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Analyst Blog

We are now in 2017 and as expected there is a whole lot of talk about how markets are going to fare this year after an eventful 2016. The last year was marked by varied events like softness in the energy space, slowdown in the Chinese market, and hype over Brexit, the U.S. Presidential election and the Fed rate hike.

All these factors kept the markets highly volatile throughout the year. However, investors finally heaved a sigh of relief as markets ended 2016 on a positive note, recovering significantly from a dismal 2015.

In 2016, the Dow Jones Industrial Average (DJI), NASDAQ Composite (IXIC) and S&P 500 (GSPC) gained 13.4%, 7.5% and 9.5%, respectively. We note that in 2015, the Dow Jones index’s return had fallen 2.2%, while the S&P 500 index ended the year on a more or less flat note. However, the Nasdaq fared better, with the tech-laden index up 5.7% in 2015.

A rebounding U.S. economy, as evident from the recently released improved economic data for GDP, and a favorable Consumer Confidence Index, unemployment rate and factory activity data have all contributed to the recovery.

Although, the U.S. economic is showing signs of improvement, the market remains susceptible to global uncertainties. Also, it remains to be seen how Trump’s revolutionary ideas are going to shape the economy.

Therefore, we believe that volatility in the stock market will continue in 2017. That said, investors must rejuvenate their portfolios and look for strategies which are safe in a volatile market.

So What Should Be the Winning Strategy?

We believe that in a highly volatile market scenario it is wiser to play safe and invest in growth stocks rather than in momentum or value ones. The increasing market volatility makes the momentum strategy highly risky, while value investing does not find many takers in the current market scenario.

However, the story is different in case of a growth strategy that focuses on investing in hot and flourishing companies with earnings expected to continue to increase at an above-average rate relative to the market.

Growth stocks can be some of the most exciting picks right now, as these high-flyers can capture investors’ attention, and yield big returns too. Today, we will discuss about some semiconductor stocks, which have performed well last year and have the potential to grow further in 2017.

Why Semiconductor Stocks?

After an abysmal 2015 that saw iShares PHLX Semiconductor ETF (SOXX - Free Report) lose over 3.3%, stocks across the semiconductor landscape rebounded well last year. Notably, the ETF, which represents semiconductor stocks, has witnessed a gain of approximately 36.6% in 2016, while the Technology Select Sector SPDR ETF (XLK - Free Report) , which represents the overall technology sector, returned 12.9% last year.

Given the recovery in the U.S. economy as reflected in the recently released improved economic data, we believe that growth opportunities for semiconductor stocks in 2017 are immense.

The latest predictions from World Semiconductor Trade Statistics (WSTS) on semiconductor sales also boost our confidence on this industry space. The WSTS predicts semiconductor sales to increase 3% in 2017 and 2% in 2018.

Picking the Right Stocks

Right now, the semiconductor segment has several promising stocks to choose from. Here we have picked four semiconductor stocks that have performed well last year and have the potential to keep the momentum going in this year.

With the help of our new style score system, we have zeroed in on the below mentioned stocks that look promising based on their encouraging Zacks Rank and favorable Growth Style Score.

Our Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best investment opportunities in the growth investing space.

5 Solid Picks

Applied Materials Inc. (AMAT - Free Report) develops, manufactures, markets and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. The EPS estimate for the current fiscal has been revised upward to $2.43 from $2.41 per share over the last seven days. The stock carries a Zacks Rank #1 and has a Growth Style Score “A”. Last year, the stock gained 72.9%.

Coherent Inc. (COHR - Free Report) designs, manufactures, and supplies electro-optical systems and medical instruments utilizing laser, precision optic and microelectronic technologies. The EPS estimate for the current fiscal has been revised upward to $7.34 from $6.61 per share over the last 60 days. The stock carries a Zacks Rank #1 and has a Growth Style Score “A”. Last year, the stock gained 111%. You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA Corporation (NVDA - Free Report) designs, develops and markets a top-to-bottom family of award-winning 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of desktop personal computer user, from professional workstations to low-cost computers. The EPS estimate for the current fiscal has been revised upward to $2.41 from $2.01 per share over the last 60 days. The stock carries a Zacks Rank #1 and has a Growth Style Score “B”. Last year, the stock gained 223.8%.

Inphi Corporation (IPHI - Free Report) operates as a provider of fabless high-speed analog semiconductor solutions for the communications and computing markets. The stock carries a Zacks Rank #2 and has a Growth Style Score of “B”. Last year, the stock gained 65.1%.

Bottom Line

Dealing with volatility is something investors may have to do this year as well. Those looking for safe bets may consider these stocks. The stocks not only have double-digit earnings growth prospects, but also an impressive Zacks Rank, which suggests that analysts are optimistic on them.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?

Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>