It's early into 2011, but we're already seeing a group of companies breaking out and stomping the general market. I've compiled a list of the top five performers in the semiconductor sector. Seeing which companies are rallying ahead of the pack might either show excellent execution from the businesses themselves, or a larger trend that could propel  sub-industries forward.

In both cases, this can be extremely valuable. In the case of businesses executing, leaders in expanding fields can be discovered. In the case of larger trends, you can use the information to search out other stocks that are following the same trend and might not have seen the same price appreciation. Call it buying into inevitable trends on the cheap.

Without further ado, here are the top five semiconductor performers so far in 2011:

Company

Market Capitalization (in millions)

Year-To-Date Return

Silicon Motion Technology (Nasdaq: SIMO)

$363.0

                        192.2%

National Semiconductor (NYSE: NSM)

$6,181.7

79.9%

CEVA (Nasdaq: CEVA)

$788.6

67.0%

Varian Semiconductor Equipment Associates (Nasdaq: VSEA)

$4,627.5

66.0%

SunPower

$2,048.0

62.0%

Source: Capital IQ, a division of Standard & Poor's. Screen is for companies with market capitalization in excess of $200 million. Returns are from Dec. 31, 2010, to May 27, 2011, and are adjusted for dividends.

Rougher waters ahead -- or not
After a ruckus that saw a litany of stocks shoot up more than 100%, largely based on growth in mobile markets, semiconductors have taken more a break so far in 2011. That's not to be unexpected; semiconductors is a heavily cyclical industry that sees periods of boom and bust as companies rush to build out capacity in better times. The widely watched Philadelphia Semiconductor Index raced out of the gate in 2011, gaining more than 14% versus a comparable 7% gain in the Nasdaq as of mid-February. This sparked fears of an industry overheating, and since then, semiconductor stocks have pulled back.

However, M&A activity suggests semiconductor stocks might still be cheap even after heady gains last year. Two of the companies above, National Semiconductor and Varian Semiconductor, have seen outsized gains thanks to buyout offers. Texas Instruments' (NYSE: TXN) offer to buy National Semiconductor was a 78% premium over its previous closing price. Applied Materials' (Nasdaq: AMAT) offer for Varian Semiconductor was a 55% premium to its previous closing price.

Those kinds of outsized premiums point to an industry that might be more resilient than recent investor fears might illustrate. Especially for companies with exposure to growing end markets like mobile and flash memory, demand still looks strong across the coming years.

That's a trend that helped both CEVA and Silicon Motion make the list of top performers. CEVA licenses its intellectual property for digital signal processors to other companies and has broad exposure to smartphones. That's a model that's close to ARM Holdings but with different technologies. In Silicon Motion's case, the company makes controller chips for flash storage that's popular in mobile devices. That's a market that's been especially strong. After Silicon Motion released fourth-quarter results at the tail-end of January, its stock leapt 30% in a single day thanks to it posting massive 17% sequential sales growth when analysts expected only flat results.

Keep updated with a watchlist
While none of the previous companies are formal recommendations, staying ahead of companies executing and in favorable industries can help you uncover more winners for the coming years. To stay updated on any of the companies mentioned in this article, make sure to add them to our new free My Watchlist feature today. You'll get up-to-date information on all the companies, and can also follow larger industries like semiconductors: