Investors flee chip stocks
There's a perception that semiconductor shares do well only during a huge expansion. So despite some good quarters, it's time to sell.
Now people will hate these two stocks, and the whole semiconductor group, even more.
Something's happening in microchip land away from the Apple (AAPL) universe, and it isn't just shrinking multiples, the culprit I often hear about when tech gets discussed.
It's about rolling the stocks back to where they traded in the Great Recession. It is about a belief that the whole rally -- from the mid-teens for TXN, from $10 for NSM or Intel (INTC) at $13 for that matter -- should be repealed. The sub rosa text for all of these stocks is the same: This is a shrinking business with shrinking margins that does well only in a huge expansion.
Do you know when I last heard that rap? Do you know what stocks? Paper and aluminum. The aluminum stocks peaked in the mid-1980s. All I ever heard was that there was no room for growth and almost unlimited downside. The paper stocks? The pure commodity plays are all gone. Disappeared or bought.
It doesn't matter that these semi companies are all growing, all spewing cash, all dominating their niches. They are considered to be uncoated free sheet paper. It doesn't matter that they have tremendous intellectual property and great contracts.
Of course, if they are connected with Apple -- like ARM Holdings (ARMH) and Cirrus (CRUS) -- they can buck the trend. And if they are all cellular -- like Qualcomm (QCOM) -- they are allowed to rally.
But we are witnessing nothing short of a secular fleeing from this group. The dividends are meager or nonexistent, and the buybacks did nothing. They are companies of a despised cohort.
I have fought the battle to justify owning these stocks. But the last round with Intel has made it too hard for me. I liked the NSM and TXN quarters. But I know what's going to happen.
Without a big economic expansion coming, they will be sold, just as we would have sold paper or aluminum.
So, sell 'em!
At the time of publication, Cramer was long Apple and Intel.
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