Shares of Texas Instruments (TXN) are down 38 cents, or 1%, at $35.24, and shares of Freescale Semiconductor (FSL) are off 13 cents, or 0.8%, at $15.55, after Bernstein Research’s Stacy Rasgon cut his rating on both stocks to Market Perform from Outperform, writing that “cyclical indicators have become a bit less favorable since our last installment in December,” while the Philadelphia Semiconductor Index (SOX) “is almost level to where it traded (on an absolute basis) in March 2011,” which means that it’s “time to move to the sidelines on cyclically-exposed names” like TXN and FSL.
Inventories are at about average levels, writes Rasgon, based on his “findings,” meaning there’s less room to expand, and estimates seem to be expecting a “snap-back” in the second half of this year, both of which he considers “neutral” factors for chips.
However, valuations are not as favorable as they were, he writes:
Relative valuations have become less attractive since our last look in December, with the sector trading at ~16% premium to the overall market on a forward 12 month price to forward-earnings basis (vs. ~13% premium in September), given the strong outperformance of the SOX relative to the broader market. Current valuations are similar to the March 2011 (and March 2012) elevated levels on earnings that are ~30% lower, suggestive of significant upside priced into the shares. NEGATIVE impact, worse vs. December.
After a decent run, TI and Freescale are ones to trade out of in favor of Qualcomm (QCOM) and Broadcom (BRCM):
Both these stocks have seen sizable runs as of late (TXN +15%, FSL +45% YTD). For investors still seeking to play the cyclical recovery however, we would continue to encourage TXN, which we believe has a structural margin case that can be made, and which possesses very good cash return while you wait. We continue to favor names more exposed to secular, rather than cyclical, upside such as QCOM and BRCM. We would avoid PC-related Intel and AMD.
No comments:
Post a Comment