UBS Upgrades Semis to Neutral (SMH)

UBS upgraded Semiconductors to Neutral from Cautious, saying the stocks have factored in the cyclical deceleration they expected

Analyst Nicolas Gaudois commented, "The semis stocks initially disconnected themselves from sector fundamentals, rallying into early June '15 in spite of revenues growth having peaked in October '14; the reconnection has, since, happened fast and furiously. Having underperformed the S&P 500 by 11% YTD, the semis SOX index has now, we believe, factored in our cyclical concerns. The group trades at 14.9x/13.2x '15E and '16E PE, and 2.01x/1.65x EV/LTM revenues, close to historic troughs. With some of the more defensive large caps – Intel, TSMC, Samsung – at attractive levels, we think the sector should now be more supported."

Gaudois expects the semis cycle to trough between 4Q15 and 1Q16. He also said, smartphones deceleration remains the most important risk

The firm's most preferred names in the space. include: AMS, Avago (NASDAQ: AVGO), Infineon (OTC: IFNNY), Nvidia (NASDAQ: NVDA), Samsung Electronics, SK Hynix, TSMC (NYSE: TSM).

The firm's least preferred, include: Linear Tech (NASDAQ: LLTC), Qualcomm (NASDAQ: QCOM), Realtek, STM

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