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The Semiconductors After the Sell Off: Are they Value Stocks or Traps?

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  • (0:25) - StockTwits: Tracey’s Premium Room
  • (2:10) - Semiconductors: Value Stocks or Traps?
  • (5:00) - Tracey’s Top Stock Picks: NVDA, LRCX, MU, INTC, AMAT, AMD
  • (18:45) - Episode Roundup:

Welcome to Episode #118 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.

The semiconductors are back!

By popular demand, Tracey is analyzing the top semiconductor stocks, now that many of them have sold off, to see if they’re value stocks or value traps.

The last time she checked in on the semiconductors was in December 2017. Back then, the stocks were values as those earnings estimates were still on the rise.

Has the story changed a year later?

Definition of a Value Trap

First, investors should know what a value trap is.

A value trap is a stock that looks like a value, because it has cheap valuations like a P/E under 15, but it’s really a trap because the earnings are in decline.

Value traps are defined as those with falling earnings. Look at the estimates to find your answer.

Tracey took a look at some of the big semiconductor names to see if they were truly value stocks or if they’re traps.

5 Top Semiconductor Stocks: Values or Traps?

1.       NVIDIA (NVDA - Free Report) is not quite a value stock yet, even though shares are down 35% in the last month. It has a forward P/E of 18.7, which is still much cheaper than just a few weeks ago. Estimates have also been slashed for both fiscal 2019 and fiscal 2020 over the last 30 days. But are the estimates in a decline? Is NVIDIA now a trap?

2.       Lam Research (LRCX - Free Report) has fallen 24% year-to-date and is now trading with a forward P/E of just 10. That makes this a true value. But after killing it in fiscal 2018, are earnings still on the upward trajectory?

3.       Micron (MU - Free Report) is the cheapest of them all. It trades with a forward P/E of just 3.6. Surely, it MUST be a value stock, right? The earnings outlook tells the tale.

4.       Intel (INTC - Free Report) is the forgotten semiconductor stock. It’s the “boring” one. But with a forward P/E of just 10.6 and a dividend currently yielding 2.5%, maybe value investors should be taking a new look?

5.       Applied Materials (AMAT - Free Report) has declined over 30% in 2018 and now trades with a forward P/E of only 9.3. It pays a dividend of 2.3% as well. Estimates have been revised in the last week after the company reported earnings. But is it a value stock or a trap?

There are some other semiconductors which aren’t yet in value stock territory such as Applied Micro Devices (AMD).

What else should you know about the semiconductors and their earnings outlooks heading into 2019?

Find out on this week’s podcast.  

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