. Niles tracks the semiconductor industry for
, which he joined in 2000. Before that, he worked in a similar capacity for
, where he started in 1990 as an associate in the mergers and acquisitions group before becoming an analyst. Prior to moving to Wall Street, he was an engineer for
Industry Outlook and Style
Look at 1996 if you want to know what the semiconductor stocks will do this year, advises Niles. So far, he's been right. January's rally strikingly resembles the 30% first-quarter rally that year. And if this year continues to follow 1996's outline, there will be another rally of similar magnitude in the April-May time frame.
This summer, though, the analyst expects the stocks to give all that back, and more -- which is exactly what happened in mid-1996. In his estimation, the stocks could dip as much as 15% below their first-quarter lows. "The stocks will wash out in summer as earnings estimates move to lower, more achievable levels," Niles asserts.
We shall see. We shall also see if Niles is right in naming late July-early August as "a terrific time to buy these stocks." He adds: "That should be the start of the next multiyear upcycle, during which many will appreciate between 100% and 200%."
The Lehman analyst couldn't be clearer when he recommends "not owning any of these stocks" between now and then. He is equally direct when he tells investors that, come August, they should be prepared to "back up the truck."
When the upturn comes, highfliers of the past will again be the highfliers, Niles predicts. The stocks he would buy six months from now:
Applied Micro Circuits
RF Micro Devices
. (Lehman has an investment banking relationship with Vitesse.)
"With the exception of Micron, these are communications-centric companies that will do incredibly well as broadband connectivity keeps growing," Niles explains. As for Micron, he calls it "more of a play on supply and demand getting back into balance throughout the semiconductor industry."
Applied Micro Circuits and Vitesse sell high data rate chips used in the core of the optical network. Xilinx is a market leader in field programmable gate arrays, which are standard logic components that deliver time-to-market advantages in networking and communications applications. Broadcom supplies into multiple network edge markets, including cable modems and set-top boxes, as well as physical layer transceivers for network interface cards. RF Micro Devices is a pure-play semiconductor component supplier to the wireless market.
As the industry's low-cost manufacturer, Micron Technology is growing market share in the commodity
DRAM market. When supply/demand balance for the industry does recover, Micron should deliver huge upside beyond current EPS estimates, Niles contends. Micron is also a play on the expanding memory requirements of the PC and server, which have been escalated by the rollout of Windows 2000.
Favorite stock for next 12 months:
RF Micro Devices
"The inventory correction in wireless handsets started earlier than in wireline communications equipment and also seems to be clearing up sooner as well. While inventory is still building at Cisco and Lucent, and Nortel is still working to deplete inventories, Nokia seems further along in having purged the inventory they had built. As a company that derives about 59% of sales from Nokia, I believe that RF Micro Devices should therefore be one of the first companies to see a snap back in orders when demand does recover."
Rate Their Stock Picks:
Which stock do you like best?
Niles: RF Micro Devices
Glavin: Applied Micro Circuits
Peck: Analog Devices