Chip stocks in a bona fide breakout
The semiconductor sector is proving naysayers wrong, taking off on product cycles and worldwide economic strength.
By Jim Cramer, TheStreet
Going into this quarter, one thing was pretty certain for the tech analysts: Semiconductor companies would disappoint. They would either fall prey to "the end of the restocking" angle or the "last good quarter" angle. They would disappoint, and numbers would have to go down.
Now, with the bulk of earnings behind us, we can see that, without a doubt, this most hated group has truly broken out. And in a way I haven't seen in many, many years. Not just quarters but years.
The move is taking everyone by surprise. In fact, it is doing more than that. It is upending a theme, one that has been with us for many years now: that the group is a cyclical nightmare, with a cycle that's never as strong as you can get from a Caterpillar (CAT) or a Freeport-McMoran (FCX) and therefore undeserving of any multiple. It's just a hated group.
Now look at it. Consider Broadcom (BRCM). It gave us an across-the-board upside surprise on everything related to cloud and wireless. It blew people away, especially given that it had become a pretty easy short-at-the-quarter trade for most hedge funds.
Or consider Texas Instruments (TXN). Remember the TXN quarter? It was supposed to be a miss. People said it guided down. This was the second straight disappointment. And during that period the stock has blasted higher, from $25 to $29, and I don't see it looking back. I know Wall Street was skeptical about the buyback, but TXN is incredibly aggressive and seemingly can't be deterred.
Or consider the curious case of Cypress (CY). Here's one that got hammered when it reported, as people didn't read the fine print. It has had about a 25% move since then, and with the company buying in one-third of what is trading, I don't think it stops anytime soon.
We also see some real pedestrian names taking off. Names like distributors -- Avnet (AVT), Arrow (ARW) and Tech Data (TECD) -- or a computer-aided design firm -- Cadence (CDNS) (long time coming for that one) -- or some real down-and-outers like Fairchild (FCS), National Semi (NSM) and LSI (LSI). The semi-equipment firms are all well bid for -- Lam Research (LRCX), Applied Materials (AMAT) and Kulicke & Soffa (KLIC) -- not long after KLIC was supposed to be the canary in a coalmine. How much was I laughed at when I questioned that stock's ability to tell us the future?
Micron (MU) and Advanced Micro (AMD) seem stalled. Cirrus (CRUS) has been a disaster after being so terrific for so long, off its Apple (AAPL) biz. Xilinx (XLNX) has totally stalled out, but it looks like Altera's (ALTR) just taking it to them.
All in all, you have to marvel -- hey, Marvell (MRVL) looks good, too! -- at how this group was supposed to do so poorly just when, as always, it has its usual strength and then some.
Yet I don't hear many converts. The hedge funds are more quick to trash the lone wolf or extrapolate the weakness of one or two players than to recognize that this is a bona fide move, with real point gains that aren't about to be repealed.
Those betting against this group have to hope that the Democrats keep both houses, Bernanke whiffs on QE2 and the labor report is abysmal.
Somehow, I don't think that hat trick will come their way. It's time to dismiss the negativity and remember that product cycles and better-than-expected worldwide economic strength, coupled with capacity taken out from years of disappointment, have given us this bountiful moment.
When will it end? I think that February will be the last month that you can own them, or until Freescale -- one of the worst private-equity deals -- comes public.
At the time of publication, Cramer was long Apple and Intel.
Click here to follow Cramer's trades for his Charitable Trust.
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