Chip Bulls Lie in Wait

Updated from 7:20 a.m. EST

Priorities. People have other priorities. That has to be what's going on with chip stocks.

Oil, bonds, the withering dollar, Iraq. All seem to be taking precedence over the semiconductor sector.

The past week brought four pretty positive reports from three distinctly different regions of the chip landscape, but the stocks as a group ended the week essentially flat with the earlier week.

"Can anyone get excited about tech stocks these days?" asked Ian Fraley, managing principal with San Francisco-based hedge fund Financia Capital. "I don't know anyone who can, and I live in Silicon Valley. I love that."

Say what?

Fraley's excited to be holding tech names when nobody else wants to, you see, because he thinks improving fundamentals mean it's only a matter of time before others come around to recognize the return and value that these stocks will provide. His portfolio is heavy technology stocks and, within that, he's heavy semiconductor stocks.

"It's extremely unusual for any particular style or sector to outperform or underperform in a big way for several consecutive years. It doesn't happen often and when it does, it generally indicates that a big reversal is about to happen," he added.

Fraley said there remains lingering wariness to stocks, especially tech stocks. But he compares equity values to risk/reward scenarios of alternative investments, like real estate and bonds, and he sees stocks as an asset class that is "absurdly cheap."

"Money always chases the highest-yielding asset and the only thing that stops that is risk aversion," he said.

It's a pattern that can be seen in semiconductor stock charts.

The Philadelphia Semiconductor Index, or SOX, doubled from early 2003 into the start of 2004, as sector growth projections for 2004 proved the strongest in years. The index dropped once inventory concerns started to spook investors and growth estimates for 2005 proved anemic. After nine months of declines, the SOX sat at a 14-month low and then marched 30% higher into December. Declines started anew and the index fell into January, hitting a three-month low before again rallying 15% to test December highs.