Staying Choosy About Chip Stocks

After a run-up this spring, shares of PC companies and chipmakers have recently hurtled back toward earth, and that's given rise to some tentative optimism on the Street.

Consider: the S&P semiconductor industry group has dropped 43% from its year-to-date high in March, while the PC group is off 27% from the same date. In response to the recent swoon in valuations, this week Lehman upgraded ratings on some chip stocks, while SG Cowen issued a note pointing out that some beaten-down chip names were trading near cash levels.

But don't think it's time to jump in just yet. Money managers say that although stock prices of PC and chip outfits have cratered, they're not cheap enough given that nobody's buying the stuff. While singling out names that will profit despite the downturn -- one favorite theme is Asian foundries -- pro stock-pickers remain wary of companies whose profits hinge on a recovery in demand. ...