Slim Demand for PCs Weakens Chips

NEW YORK ( TheStreet) -- It seems like both businesses and consumers have put on hold the decision to buy a new personal computer. Perhaps they are waiting for Windows 8 from Microsoft ( MSFT), or considering a switch to a computing device made by Apple ( AAPL). Other considerations might be that PC sellers are cleaning out inventories of PCs with Windows 7. Or, it could simply be a sales slowdown caused by the weakening global economy. Regardless, what we do know is that last week both Dell ( DELL) and Hewlett-Packard ( HPQ) reported weaker-than-expected PC sales data.

Back on Aug. 7, I wrote Stocks in SOX: Sector Rotation Shifts to Chips where I noted that 11 components of the PHLX Semiconductor Sector Index (SOX) had been downgraded that day to "3-Engine" Hold ratings from "4-Engine" Buy ratings according to www.ValuEngine.com. With slumping PC sales another concern is that semiconductor stocks just might have to lower guidance for the third and fourth quarters.

The daily chart for the SOX shows a year-to-date low at 345.50 set July 17. This was after two failed tests of the 200-day simple moving average on June 20 and July 3. The SOX moved above the 200-day on Aug. 6. The 200-day is now an important support at 393.19. This week's value level is 388.18 with monthly and quarterly risky levels at 420.20 and 450.28.


Chart Courtesy of Thomson/Reuters

The weekly chart below shows that the SOX held just above its 200-week simple moving average at 344.60 the weekly of July 20th. The weekly chart profile has been positive since the week of July 27 and the momentum (12x3x3 weekly slow stochastic) reading continues to rise. Weekly closes have been above the five-week modified moving average, now at 390.40.

Chart Courtesy of Thomson/Reuters

The above table shows data from www.ValuEngine.com covering the 30 components of the SOX listed alphabetically from top to bottom.

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, 18 members of the SOX are undervalued and 12 are overvalued. The most overvalued stock is Cirrus Logic ( CRUS) by 61.2%. The most undervalued stocks are Advanced Micro ( AMD) by 41.9%, Marvell Technologies ( MRVL) by 39.5% and Rubicon Technologies ( RBCN) by 35.1%.

Only three stocks in the SOX are "4-Engine" Buy rated: Intel ( INTC), Marvell and Taiwan Semiconductor ( TSM).

Twenty SOX members are higher over the past 12 months, while nine are lower. Mellanox Tech ( MLNX) is up 303.1% with Cirrus Logic up 195.2%. The biggest losers are Memc Electronic Materials ( WFR) is down 57.7% and Interdigital ( ICDD) is down 50.2%.

SOX stocks are not cheap on a P/E basis as 18 have ratios above 15.0.

Profiles

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

  • Intel Corp ( INTC) ($24.91) is trading just above its July 12 low at $24.68. My semiannual value level is $21.14 with a weekly pivot at $24.95 and monthly risky level at $27.97. This stock was added to my ValuTrader Model Portfolio at $24.75 on July 12.

  • Marvel Technology ( MRVL) ($10.45) is trading just above its July 12 low at $10.27. My semi annual value level is $10.02 with a weekly pivot at $10.65 and monthly risky level at $12.87. This stock was added to my ValuTrader Model Portfolio at $11.30 on June 25 and was removed at was removed at $11.85 on Aug. 9 for a gain of 4.9%. Marvel returned to the model portfolio at $10.45 on Aug. 27.

  • Taiwan Semiconductor ( TSM) ($14.37): 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.

    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.

    If you liked this article you might like

    A Tech Sector Is Now in Correction Zone -- Here's How You Trade the Bottom
    A Tech Stock Correction Has Been Long Overdue -- Don't Expect an Imminent Crash, However
    The Tech Sector Outperforms With Semiconductors Leading the Way

    The Tech Sector Outperforms With Semiconductors Leading the Way

    5 ETFs to Buy If You Love Nvidia's First-Quarter Results

    5 ETFs to Buy If You Love Nvidia's First-Quarter Results

    5 ETFs to Buy If You Love Intel's First-Quarter Earnings

    5 ETFs to Buy If You Love Intel's First-Quarter Earnings