Semis Offer Attractive Valuation, Priced for Worse Case Scenario - Jefferies

June 5, 2012 9:02 AM EDT
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Price: $21.84 -1.53%

Rating Summary:
    32 Buy, 8 Hold, 3 Sell

Rating Trend: Up Up

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    Up: 35 | Down: 30 | New: 8
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Semiconductor stocks appear to be priced for a 2008-style financial crisis, according to analysts at Jefferies. In an industry note, analysts pointed out the historically low valuation, which combined with potential for catalysts in the second half of the year, could move stocks in this space higher.

The report notes three semi conductor stocks in particular Micron Technology Inc. (NASDAQ: MU), ON Semiconductor Corp. (NASDAQ: ONNN), and Advanced Micro Devices, Inc. (NYSE: AMD).

"All three carry equity valuation to sales ratios below the 2008 financial level trough. Also, we think this group potentially benefits from the Windows 8 OS introduction which we anticipate in the second half of 2012," stated Jefferies analysts.

Market Vectors Semiconductor ETF (NYSE: SMH) is down by 10.4 percent in the past 30 days, compared to SPY which is down only 6.5 percent. Based on Jefferies models, the valuation implies a 25 to 35 percent discount to estimated 2012 and 2013 revenues, making stocks in this area attractive for investors who anticipate moderate or even slow growth in the US economy.

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