3 chip stocks that could short out
The sector has been on a tear, but selling pressure is mounting.
By Anthony Mirhaydari
One of the leading sector groups over the last few months has been semiconductor stocks.
Excitement over the "Internet of things" as well as indications that moribund PC sales seem to be stabilizing thanks to Microsoft's (MSFT) dropping of Windows XP support -- resulting in a forced upgrade cycle for many users -- have pushed the sector into a near-vertical trajectory since breaking out three months ago. (Microsoft owns and publishes Top Stocks, an MSN Money site.)
But the sector has lost some momentum so far this month, with selling pressure intensifying as a surge of negative volume undercuts the sector's upward momentum. After such an exciting rise, there is evidence that a pullback looms.
For one, PC sales still stink: IDC estimates that worldwide PC shipments for the year will decline 6 percent from last year, which featured a 10 percent drop from 2012. Moreover, as quarterly results from Apple (AAPL) proved Tuesday night, the tablet market looks like it is getting saturated. IPad sales dropped 9.2 percent over last year. Research firm NPD said earlier this month that tablet shipments had dropped for the first time ever earlier this year (from 58.9 million in Q1 of 2013 to 56 million in Q1 of 2014).
In the context of all this, here are three semiconductor stocks that are looking vulnerable.
Freescale Semiconductor (FSL) is at the forefront of the push into the Internet of things, specializing in the embedding of low-power microprocessors into automotive, consumer and industrial product applications.
However, FSL shares are suffering a pullback back below their 50-day moving average -- in the midst of a sideways trading range going back to February -- on reports that analysts at Needham downgraded the stock from a "strong buy" to a "hold." This follows a downgrade of FSL stock by analysts at IGI Group back on July 14.
Altera (ALTR) designs and makes custom programmable silicon, microprocessors and logic devices that are the basic building blocks of digital electronics.
Shares dropped hard Wednesday in response to poor earnings and guidance from a competitor on a slowdown in Chinese cellular infrastructure building, inventory accumulation, and a pause in defense sector orders. ALTR itself reports Thursday night, however, so caution here is advised.
Linear Technology (LLTC) specializes in analog circuits, including signal conditional and radio frequency products used in stereo amplifiers, power-over-Ethernet and other applications. Its circuits appear in products for instrumentation, security monitoring, telecommunication, tablet/notebook and multimedia.
Shares dropped hard Wednesday, falling toward LLTC's 200-day moving average, despite the company reporting better-than-expected earnings on Tuesday. The bugaboo seems to be the inline guidance of revenue for the current quarter, which is disappointing investors.
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