Tuesday, June 21, 2022
Don’t look now, but stocks are trading up today, which has been a true rarity this year. Especially when it comes to the technology sector and the Nasdaq.
In fact, even after a 3% surge today, the Nasdaq is still down 30% year-to-date.
Like I said, it’s been ugly out there.
Believe it or not, though, there are actually a handful of tech stocks that are not only up today, but up for the entire year.
How can that be? It’s simple. They’re operating in the fastest growing segments of the tech market, which has helped insulate their stock prices from all the carnage.
Why bring this up? Because if we wanted to focus on buying the strongest, most fundamentally sound tech stocks in this market, these companies would represent the top candidates.
Newsflash: That’s precisely what we want to do. So let’s get to it…
I did a quick screen this morning.
First, I started with all Nasdaq-listed technology companies with a market cap over $300 million. There are 335.
Then, since stock prices ultimately follow earnings, I layered on a screen for quarter-over-quarter profit growth. That cut the list roughly in half, down to 163.
Last but not least, I screened for stocks that were up by at least 5% on the year. After all, if the trend is our friend, any stock rallying in this market is likely to rally even more once the broader market rebounds.
Like I said before, this resulted in a “handful” of stocks. More specifically, four of them.
And it turns out that all four provide products and services related to semiconductors.
We shouldn’t be surprised.
I’ve been writing so often about the Era of Techbiquity, whereby chips power essentially everything, you’re probably tired of it. But don’t be — because it promises to be the biggest and most prolific growth trend of our lifetimes.
Case in point: Last year, the amount of semiconductor content in electronic systems surged to hit a fresh all-time high at 33.2%.
And there’s no sign of this chip content going anywhere but up from here.
If you’re still reluctant to believe it and buy into the trend, look no further than the cloud computing segment of the chip market.
When investors think of the major cloud players, the list is (really) short. It includes Microsoft (MSFT), Alphabet (GOOG), and Amazon.com (AMZN).
What few investors realize, though, is that these three players can’t operate their cloud businesses without semiconductors.
So while the topline growth last quarter for cloud businesses at Microsoft (+46%), Alphabet (+44%) and Amazon (+37%), were impressive at 46%, 44%, and 37%, respectively, it falls short of the growth experienced by the trio of leading memory chipmakers supplying the required hardware.
I’m talking about Samsung Electronics Co., Ltd. (SSNLF), SK Hynix Inc., and Micron Technology Inc. (MU).
Consider Samsung, for example.
It reported its third straight quarter of record cloud chip sales.
Meanwhile, Micron and SK Hynix issued such bullish guidance, it’s clear the data center market is going to double in size by 2025. That’s substantiated by the latest stats out of Gartner, as you can see below — and these numbers will probably end up being conservative.
Add it all up — and we should be buying the fundamentally strongest, small- to mid-cap chip companies on every dip, as they promise to report the strongest, fastest sales and profit growth in the coming quarters and years.
In turn, share prices should naturally follow suit.
And if you’re looking for a specific chip stock to buy right now, stay tuned.
I have a fresh favorite from the list of outperformers above. It’s not only the cheapest, but it’s also the fastest growing.
I plan to share all the details with subscribers to my premium advisory Digital Fortunes the second I put the finishing touches on my latest research report this week. So make sure you’re signed up here.
Ahead of the tape,