Ahead of the Bell: Altera, Xilinx downgraded

An analyst downgraded Altera Corp. and Xilinx Inc. Tuesday while taking a negative outlook on the specialized semiconductor sector.

The companies, which make products known as programmable logic devices, "have morphed from growth to just cyclical stocks," Jefferies & Co. analyst John Lau said, while noting current business trends in the sector remain difficult.

Lau cut his rating on the San Jose, Calif.-based companies to "Underperform" from "Hold."

He slashed his price target on Altera to $17 from $19, implying he expects the stock to fall 18 percent over Monday's $20.70 close.

On Xilinx, Lau cut his price target to $21 from $23, implying he expects shares to slip 17 percent over Monday's $25.25 close.

"We believe the recent run-up in the Altera and Xilinx stock is ahead of the overall semiconductor market and is at the top of their historical range," he said, adding "we believe the potential downside to the stock is much greater than the upside."

So far this year, shares of Altera have risen 7 percent and shares of Xilinx have jumped 16 percent.

Representatives from neither company were immediately available for comment.