Stocks in SOX: Sector Rotation Shifts to Chips

NEW YORK ( TheStreet) -- In recent stories I have written on TheStreet.com, I suggested booking profits on overvalued utility stocks on July 30 and on overvalued consumer staples stocks Monday, Aug. 6. On the buy side I focused on the undervalued basic materials stocks on July 31 and undervalued energy stocks on Aug. 1.

Today I am focusing on undervalued and Buy rated stocks in the PHLX Semiconductor Sector Index ( SOXX). The last time I assessed the risk/reward for semiconductors was on July 19 when I wrote Intel Pointing the Way for Chip Stocks two days after Intel ( INTC) reported solid second-quarter earnings results.

On July 17, SOX set its year to date low at 345.50. Since then SOX rallied to 394.13, up 14.1% into Monday, Aug. 6. The daily chart below shows that SOX failed at its 200-day simple moving average on June 20 and on July 3; it appears that the third time is the charm with Monday's close above the 200-day at 391.78. It was the first close above the 200-day since May 14.

At the low on July 17, SOX held above its 200-week simple moving average 344.60.


Chart Courtesy of Thomson / Reuters

The weekly chart below shows that the SOX held just above its 200-week simple moving average the weekly of July 20. The weekly chart profile turned positive a week later on July 27 with rising momentum (12x3x3 weekly slow stochastic) reading and with a weekly close above the five-week modified moving average, now at 381.53.

My weekly value level is 383.21 with monthly and quarterly risky levels at 420.20 and 450.28.

Chart Courtesy of Thomson/Reuters

The above table shows data from www.ValuEngine.com covering 25 of the 26 components of the SOX listed alphabetically from top to bottom. Click on it to see a larger pop-up version of the table.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A 1-Engine rating is a Strong Sell, a 2-Engine rating is a Sell, a 3-Engine rating is a Hold, a 4-Engine rating is a Buy and a 5-Engine rating is a Strong Buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number are projected to move higher by that percentage over the next 12 months.

Analysis of the Philadelphia Semiconductor Index

Looking at the overvalued/undervalued data, 17 members of SOX are undervalued and eight are overvalued. Only three stocks in the SOX are Buy rated, and these are the semiconductor stocks I will focus on today.

A huge warning for the index this morning is the fact that 11 components have been downgraded this morning to Hold from Buy according to ValuEngine. When you look at the ratings in the table the stocks that were downgraded have their 3-Engine rating highlighted in Red.

Seventeen SOX members traded higher over the past 12 months, while eight have declined. Four stocks are projected to decline over the next 12 months, but the best upside potential is for Intel, projected to gain 6.8% over the next 12 months. SOX stocks are not cheap on a P/E basis as thirteen have ratios above 15.0.

Here are profiles for the three semiconductor stocks in the SOX that are Buy rated according to ValuEngine.

Intel Corp ( INTC) ($26.31): Closed above its 200-day simple moving average at $26.10 on Friday. My semiannual value level is $21.14 with a weekly pivot at $26.11 and monthly risky level at $27.97. This stock was added to my ValuTrader Model Portfolio on ValuEngine.com at $24.75 on July 12.

Marvel Technology ( MRVL) ($11.12): Is a laggard in the SOX trading below its 50-day and 200-day simple moving averages at $11.44 and $13.93. My semi annual value level is $10.02 with monthly and quarterly risky levels at $12.87 and $13.80. This stock was added to my ValuTrader Model Portfolio ValuEngine.comat $11.30 on June 25.

Taiwan Semiconductor ( TSM) ($14.24): Closes have been above its 200-day simple moving average at $13.86 since July 31. My semiannual and annual value levels are $12.58 and $11.32 with a semiannual pivot at $13.91, and monthly and quarterly risky levels at $15.52 and $15.80.

I advocate the use of GTC Limit Orders to add to long positions or become less short on share price weakness to the Value Levels. Traders should enter GTC Limit Orders to reduce the long positions or to add to a short position on strength to Risky Levels.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.