In the Bloomberg‘s “AJ’s Insight & Action,” anchor Adam Johnson reports on the performance of the semi-conductor industry and the earnings growth ahead for the companies in the industry like Freescale Semiconductor Ltd (NYSE:FSL), Advanced Micro Devices, Inc. (NYSE:AMD), Lam Research Corporation (NASDAQ:LRCX), ON Semiconductor Corp (NASDAQ:ONNN) and Applied Materials, Inc. (NASDAQ:AMAT).
Speaking on the semi-conductor industry stocks, Johnson said, “Semi-conductor investors, your long wait is finally over.” Johnson added that the semi-conductor index, the SOX Semiconductors Index, has finally went up above the levels which have been not seen since 2002 i.e. a wait of 12 years. According to him, it was all about earnings growth.
On the reason behind the breaking of past levels, Johnson said:
“Look at this, for the Semi’s on top, earnings growth of 41% versus about 9% for the S&P 500. You are getting four times the earnings growth with the Semi’s. As you are with the broad market, it’s why Semi’s, did you realize this, up about 18.5% year-to-date with nearly 3 times the S&P 500. Ok, fair enough, you pay a little bit more for the Semi’s, about 19.5 times on the forward earnings 2014. That is more than you pay for the S&P 500. But again, you are willing to pay that slight premium to the S&P 500 because you are getting four times the growth.”
Johnson advises investors to invest either in the SMH, which is the Semi-conductor industry ETF or in the top 5 stocks of the industry namely Freescale Semiconductor Ltd (NYSE:FSL), Advanced Micro Devices, Inc. (NYSE:AMD), Lam Research Corporation (NASDAQ:LRCX), ON Semiconductor Corp (NASDAQ:ONNN) and Applied Materials, Inc. (NASDAQ:AMAT).
The top 2 stocks out of the 5 were Freescale Semiconductor Ltd (NYSE:FSL) and Advanced Micro Devices, Inc. (NYSE:AMD). Johnson said that Freescale Semiconductor Ltd (NYSE:FSL) is trading at 16.3 times forward earnings, which is little less than the market P/E of 16.9, and it is growing at 221%.
Meanwhile, Advanced Micro Devices, Inc. (NYSE:AMD) is trading at 25.4 times forward earnings and is also growing at 240%, which is the highest among Johnson‘s top five semi-conductor stock picks.
Disclosure: none
