Market Overview

Semiconductor Stock Outlook for 2012


Heading into the New Year, where are the opportunities in the semiconductor space? What are the names to avoid? A look back at some individual names' performance in 2011 along with their current technical and fundamental outlook may offer up some ideas. Year-to-date, the Semiconductor HOLDRs ETF (NYSE: SMH) is down 6%, which compares to a gain for the S&P 500 of 0.38% as of mid-day Friday. Given the relative underperformance of semis, there could be some bargains to be had in the space. Below, Benzinga takes a look at some of the leading semiconductor names and handicaps their potential prospects for 2012.

Intel (NASDAQ: INTC) - Intel is the leading semiconductor company in the world. The tech giant currently has a market cap of $124 billion and the stock is most suitable for risk-averse investors seeking income. At current levels, INTC is yielding a very healthy 3.45%. The name also offers the possibility of growth, but it is hardly the high-flier that it once was. Nevertheless, INTC has had a very strong 2011 and has developed an interesting chart pattern.

The stock has gained almost 16% this year and is within striking distance of breaking out to multi-year highs - a bullish signal. INTC shares currently trade at $24.31 and have a 52-week high of $25.78. A breakout of this upper range early in 2012 could set up for higher prices going forward. Valuation looks very reasonable. INTC trades at a trailing P/E of 10.52, a forward P/E of 10.17, and a PEG ratio of 0.91. While this appears to be cheap, it also implies that the market has serious questions about INTC's growth profile going forward.

Broadcom (NASDAQ: BRCM) - This stock has been crushed in 2011, falling more than 31%. The company currently has a market cap of $16 billion. While this is just a fraction of INTC's market cap, BRCM remains one of the leading global semiconductor players. Shares currently trade at $29.81 and remain in an extended downtrend which goes back to January. For this reason, BRCM may be a name to avoid in 2012. The stock is trading in no man's land and has broken through some key support levels in the last few months, making the chart less than promising.

While the technical picture does not inspire confidence, BRCM's valuation appears compelling. The stock trades at a trailing P/E of 18, a forward P/E of 10.83, and a PEG ratio of 0.69. This compares to an industry average P/E of 15.45 and a PEG ratio of 1.20. BRCM also yields 1.20%. Given the stock's chart pattern, however, investors who are interested in this name may want to wait for the stock to hammer out a solid bottom before jumping in on the long side.

Texas Instruments (NYSE: TXN) - Shares have underperformed the broader market in 2011, falling 8.86% to $29.62. The company is one of the leading semiconductor manufacturers in the world and has a $34 billion market cap. This is not a terribly exciting stock, as TXN has been range bound for 10 years - although the range has been fairly wide.

The stock trades at a trailing P/E of 12.35, a forward P/E of 14.18 and a PEG ratio of 1.88. At current levels, TXN yields 2.30%. Wall Street analysts have a positive view on the name, but are not projecting huge upside. The current mean analyst price target for the name is $32.29. While TXN remains a consistent, high-quality company, shares will likely track the broader market and the semiconductor index as a whole in 2012.

Qualcomm - Qualcomm (NASDAQ: QCOM) is a global tech giant which is nearly on the same level as Intel. The company, which is a leader in the wireless semiconductor business, has a market cap of $91.66 billion. Despite its size, QCOM has been a consistent grower and is an exciting stock. Over the last 10 years, QCOM shares have risen more than 118%. In the last 5 years, shares are up more than 44%, including 10.18% in 2011. In addition to providing shareholders with consistent, steady gains, QCOM also yields 1.58% at current levels.

The stock is currently trading around $5 below 10-year highs. From a technical perspective, if QCOM breaks above the $60 level in 2012 it could set up for a large bull move as the name has created a chart base that goes back to the end of 2003. QCOM trades at a trailing P/E of 21.71, a forward P/E of 13.68 and a PEG ratio of 0.97. Given the company's long-term track record of creating shareholder value, an interesting chart pattern, and its reasonable valuation this is a name that investors should keep an eye on in the New Year.

ARM Holdings (NASDAQ: ARMH) - This UK basked semiconductor companies has had a very strong 2011, rising around 30%. Furthermore, in the last 5 years, ARMH is up more than 273%. After a huge rally in January of this year, the stock has been basing throughout 2011 and could be setting up for another move higher early in 2012.

The company has a market cap of $12 billion and is seeing impressive revenue and earnings growth. Revenues have gone from $259 million at the end of 2007 to $406.60 million at the end of 2010. The company will have to be able to maintain very strong growth rates going forward, however, in order to justify its high-flying valuation. Shares trade at a trailing P/E of nearly 72 and a offer a 0.55% dividend yield at current levels.

Nvidia (NASDAQ: NVDA) - Nvidida had a very strong start to 2011 as investors bid up the name on optimism over its new line of Tegra chips. After a huge January rally, however, NVDA has been a bitter disappointment as the shares have fallen from a high above $25 to the current price of $14.14. All in all, the stock is down 8.12% year-to-date. The graphics chip-maker has fallen on hard times in recent years and earnings and revenues have been volatile. Although the stock entails quite a bit of risk and is not terribly attractive, NVDA does appear to have strong support in place just below $12.

The shares trade at a trailing P/E of 13.56, a forward P/E of 13.11 and a PEG ratio of 0.91. Like some of the other names on this list, NVDA is simply not very expensive on a valuation basis, however, one reason for this is that the market has concerns over the state of the company's core business. NVDA does not currently pay a dividend.

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