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5 Great Chip Stocks to Buy on Fresh Trade Deal Hopes

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The Dow advanced more than 250 points on Aug 26 following encouraging comments on trade from President Trump. The U.S. President revealed that China was willing to recommence trade talks following telephonic discussions on Aug 24. The news provided a much-needed respite to the embattled American investor, following the heavy losses suffered on Aug 23.

As a result of Trump’s announcement, semiconductor stocks surged, staging a strong rebound after Friday’s reverses. This is one of the sectors on which the trade war has weighed heavily since it derives a large chunk of its business from China. But fresh trade deal hopes have reminded investors that the sector has a bright future. Investing in select semiconductor stocks makes for a smart choice at this point.

Trump Says China Ready to Return to Negotiations

On Monday, Trump said China was willing to restart trade talks, citing two “very good calls” from Beijing. The U.S. President was speaking to reports on the sidelines of the G-7 meeting in Biarritz, France. Trump indicated that serious negotiations between the two trade rivals would likely begin in earnest very soon.

According to Trump, China held an important telephonic call with U.S negotiators and said “let’s get back to the table.” The U.S. President thinks that the world’s second-largest economy has been hurt very badly but they understand this is the right thing to do.” Trump said that he respected China’s decision, describing it as “a very positive development for the world.”

Chip Stocks Surge on Deal Hopes

Semiconductor stocks surged following Trump’s comments with Micron (MU - Free Report) and Advanced Micro Devices (AMD - Free Report) ending the day 1.1% and 2.5% higher, respectively. Meanwhile, Apple led gains for the Dow, advancing by 1.9%. This was in sharp contrast to events on Friday when chip stocks plunged after China announced the imposition of retaliatory tariffs on U.S. goods.

This is because the semiconductor space has a heavy exposure to the Chinese economy. For instance, AMD derives nearly 26% of its total revenues from China, per data from Goldman Sachs (GS - Free Report) released in March 2018. Similarly, Qualcomm (QCOM - Free Report) generates 69% of its revenues from China while NVIDIA (NVDA - Free Report) derives 56%. This is why fresh trade deal hopes have boosted the sector’s fortunes.

Our Choices

After facing heavy reverses last Friday following the imposition of retaliatory tariffs by China, renewed trade deal hopes revived the fortunes of the semiconductor space. Trump will likely push for a near-term trade deal ahead of the presidential polls since fresh tariffs are hurting large sections of loyal voters.

This is why it makes sense to invest in semiconductor stocks at this time. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Cirrus Logic Inc. (CRUS - Free Report) is a fabless semiconductor supplier, which develops, manufactures and markets analog, mixed-signal, and audio DSP integrated circuits (ICs).

Cirrus Logic has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 2.9% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 34.3% north over the past 30 days.

ACM Research, Inc. (ACMR - Free Report) develops, manufactures and sells single-wafer wet cleaning equipment, which semiconductor manufacturers can use in numerous manufacturing steps to remove particles, contaminants and other random defects.

ACM Research’s expected earnings growth for the current year is 30.9%. The Zacks Consensus Estimate for current-year earnings has improved 25.5% over the past 30 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Diodes Incorporated (DIOD - Free Report) is a leading manufacturer and supplier of high-quality discrete and analog semiconductor products, primarily to the communications, computing, industrial, consumer electronics and automotive markets.

Diodes Inc. has a Zacks Rank #2 (Buy). The company’s expected earnings growth for the current year is 19.8%. The Zacks Consensus Estimate for current-year earnings has moved north by 1.8% over the past 30 days.

Lattice Semiconductor Corporation (LSCC - Free Report) designs, develops and markets high performance programmable logic devices and related development system software.

Lattice Semiconductor has a Zacks Rank #2. The company has expected earnings growth of 72% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 19.5% over the past 30 days.

NeoPhotonics Corporation (NPTN - Free Report) is engaged in the design and manufacture of photonic integrated circuits, or PICs, based modules and subsystems for bandwidth-intensive, high-speed communications networks.

NeoPhotonics has a Zacks Rank #2. The company has expected earnings growth of 66.3% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 46.3% north over the past 30 days.

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