Market Overview

Is Now the Time to Buy Semiconductor Stocks?

Seagate Technologies (NASDAQ: STX) announced yesterday the company's preliminary second quarter financial results, which were better than expected. Seagate also updated its third quarter outlook, as it believes that the unit demand will exceed supply in 2012.

The company says “the March 2012 quarter, and before giving effect to the acquisition related charges referenced above, it expects unit shipments to increase as compared to the December quarter, revenue of $4.2-$4.5 billion, gross margin as a percent of revenue of at least 33%, and operating expenses to be approximately $415 million.”

This positive outlook is a relief to the investors who have put their money in the semiconductor sector that has been hit hard by the 2011 floods in Thailand. As a result, Seagate Technologies is trading 5.59% higher today.

Seagate CEO, Steve Luzco, mentions that the company's better than expected preliminary results “also reflect the hard work and resiliency of the Seagate teams and our strategic suppliers who are working to help the industry recover from the massive disruption caused by the flooding in Thailand.”

The better than expected preliminary results could a positive signal for other semiconductor companies that have been under pressure due to flooding in Thailand. On today's trading session, LSI Corporation (NYSE: LSI) is up 7.72%, STEC, Inc (NASDAQ: STEC) +6.39%, OCZ Technology Group (NASDAQ: OCZ) +7.18%, and Western Digital Corp (NYSE: WDC) +4.79%.

Analyst also welcomed the positive news, as Seagate's price target was raised today at Citigroup, FBN Securities, Goldman Sachs, and JP Morgan today. Additionally, Wedbush upgraded LSI Corporation from Neutral to Outperform raising its price target to $8.50. It is possible that we will see more upgrades in this sector, as Seagate's better than expected outlook may cause the analysts to revisit their earlier estimates.

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ACTION ITEMS:

Bullish:
Traders who believe that Seagate's positive outlook is a bullish signal for the entire sector might want to consider the following trades:
  • There's an ETF for that: SPDR S&P Semiconductor ETF (NYSE: XSD)
  • Buy call options on any of these names, as they may rally if they get an analyst upgrade.
  • This is positive news for Thailand as well. iShares MSCI Thailand Index Fund (NYSE: THD) might benefit.
Bearish:
Traders who believe that Seagate got lucky and the other companies will not recover as quickly from the Thai floods may consider alternative positions:
  • These stocks have rallied today, so shorting them could be a profitable play.
  • Buy February puts on these companies, as they get crushed on worse than expected earnings
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: Thailand FloodsLong Ideas News Short Ideas Global Tech Trading Ideas Best of Benzinga

 

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