When the Street runs red with the blood of innocent stocks, it's time to put your scuba gear on. Diving for deals in a total market panic is the best way to buy low and set you up for selling high when things go back to normal.
In the chip sector, the values run deeper than almost anywhere else. Capital IQ identifies 86 stocks with market caps over $500 million in the sector -- and a stunning 84 of them have lost value over the last 30 days. The two exceptions are LED lighting specialist Cree (Nasdaq: CREE ) on a terrific earnings report and Volterra Semiconductor for much the same reason.
Every other chip-related stock fell victim to the credit downgrade, European risks, or some other perceived calamity. While some drops were richly deserved, there are plenty of deep discounts here with nothing to blame but this crazy market. Let's look at a few tremendous examples.
CAPS Rating (out of 5)
|Semtech (Nasdaq: SMTC )||(21%)||*****|
|TriQuint Semiconductor (Nasdaq: TQNT )||(22%)||*****|
|NXP Semiconductors (Nasdaq: NXPI )||(20%)||****|
|Silicon Laboratories (Nasdaq: SLAB )||(17%)||****|
|Atmel (Nasdaq: ATML )||(23%)||***|
Data from Google Finance and Motley Fool CAPS.
There's more to these drool-inducing discounts than mere price drops and respectable CAPS scores:
- Atmel is a leader in touchscreen controllers. Few stocks can ride the tablet-and-smartphone trend the way this company can, and the stock should eventually follow suit. Shares are trading for less than 8 times trailing earnings today.
- Rule Breaker NXP popped yesterday because analysts reminded investors just how terrific the stock looks. So you may have missed the absolute bottom, but NXP is poised to strike it rich when near-field communications (NFC) mobile payments and marketing messages become ubiquitous.
- Longtime Stock Advisor pick Silicon Labs started with a weak next-quarter outlook and then got caught up in the market upheaval on top of that first drop. The market opportunity in the crowded media and communications chip market is less obvious than the less populous touchscreen and NFC markets, but Silicon Labs is rejiggering its product mix to be more profitable. Moreover, the company is a big name in digital TV tuners -- a stalled market that could hit the big time in 2012.
- Semtech leans heavily on the networking market, thanks to the rising importance of its high-speed transceiver products. Large customers Finisar (Nasdaq: FNSR ) and Cisco Systems have caused Semtech plenty of pain this summer with their supposedly slow order flows -- but have you heard? Networking orders already bounced, judging by Cisco's recent results. Unless Cisco's newfound strength is an absolute mirage, we should expect Semtech to come back strong from this low point. The company reports earnings in two weeks.
- Finally, radio-chip specialist TriQuint also primed the pump with cautious third-quarter guidance before the credit crash happened. Burned by insufficient manufacturing capacity when times were good, the company is investing heavily in its production line right now. That hurts free cash flows and scares many investors, but it's exactly the right way to prepare for the next bull run on radio chips. LTE products remain a small part of TriQuint's sales today but should explode in 2012. And TriQuint is a favorite supplier to that fruit-flavored smartphone giant we all know and love -- which hasn't even made a 4G phone yet.
Given these ridiculous starting prices, it's hard to go wrong with any of these stocks. That being said, this is not a list of official recommendations but a starting point for further research. To help you along, we've created a tool that lets you mainline news and Foolish analysis on any stock you choose. Just add the tickers that interest you to your Foolish watchlist and enjoy the hands-free information flow: