This column was originally published on RealMoney on July 12 at 10:32 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.My model assumes that when stocks decline to quarterly, semiannual and annual value levels, bad news has been factored into share-price weakness. There certainly has been plenty of bad news lately in tech stocks, which may make it difficult to believe that now is a time to buy, but that is what my model indicates. Earnings season began with a warning from Advanced Micro Devices ( AMD) last Thursday evening, as it lowered its sales guidance for the second quarter. Other semiconductor stocks, such as Broadcom ( BRCM) and Marvell Technology ( MRVL), have gone from parabolic peaks in the first quarter to falling knives because of the options-compensation backdating scandal. On Monday, Merrill Lynch applied additional downside pressure by downgrading the sector.
|Philadelphia Semiconductor Index|
|Source: Athena Graphics|
In the fourth quarter of 2005 and the first quarter of 2006, I suggested that investors reduce positions in semi stocks because they were overvalued and overbought. Now their profiles have shifted 180 degrees, and these former highfliers have become undervalued and are either oversold or getting there. Investors should consider rebuilding positions now and adding to holdings if they fall to my value levels in the table below. It helps to use good-till-canceled limit orders to buy weakness to these levels.
|Rating the Chipmakers|
|11 July Price||Rating||(-UV) / OV%||Fair Value||MOM||5-Week MMA||Value Levels||Pivots||Risky Levels|
|Advanced Micro (AMD)||$22.98||HOLD||-3.90%||$23.92||OS||$27.37||20.80 A||26.39 Q||27.71 Q / 28.61 A|
|Broadcom (BRCM)||$28.39||HOLD||-16.70%||$34.06||OS||$32.73||25.17 Q / 22.11 S||36.36 Q|
|Intel (INTC)||$18.67||HOLD||-21.40%||$23.75||RM||$18.55||16.80 Q / 14.69 S||18.17 M / 19.10 Q||28.04 S|
|Marvell (MRVL)||$40.91||HOLD||-30.20%||$58.62||OS||$49.18||36.20 Q||58.38 Q|
|NVIDIA (NVDA)||$19.15||BUY||-24.70%||$25.43||OS||$22.34||17.88 Q||19.20 S||23.31 Q / 27.59 M|
|SanDisk (SNDK)||$45.70||HOLD||-12.70%||$52.35||DM||$53.62||38.07 A||48.26 A / 48.67 S||59.62 S|
|Texas Instruments (TXN)||$29.63||HOLD||0.80%||$29.40||DM||$30.60||26.87 Q / 21.98 S||27.74 S / 30.64 M||33.25 Q|
|Key: MOM, momentum; OB, overbought; DM, declining momentum; RM, rising momentum; OS, oversold; F, flat; M, monthly; Q, quarterly; S, semiannual; A, annual. A value level is a price at which my models project that buyers will emerge; a risky level is a price at which investors are likely to reduce holdings, according to my models. A pivot is a value or risky level that has been breached in its particular time horizon; the stock will likely trade around this pivot. |
Source: Global Market Consultants
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