Strategists Recommend these Stocks after a 50% Surge from its 2022 Lows

There has been quite a turnaround in the semiconductor sector in recent years.

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A number of chip stocks suffered losses last year, with the iShares Semiconductor ETF (ISM) posting among the worst performances (SOXX) has lost more than 35% of its value over the past few months. It has been a quiet recovery for the sector, with the major indexes outperforming the sector by almost 50% from their lows of October, with the index up nearly 50% from its October lows.

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Since the beginning of the year, chip stocks have remained somewhat under the radar as the buzz around artificial intelligence and the recovery in Big Tech dominated investor attention and overshadowed chip stocks quite a bit.

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There are many Wall Street pros that urge investors to take a longer-term approach to invest, even though the semiconductor industry is notorious for its cyclicality and boom-bust cycles.

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“In the medium-term, we might seem like dead money, but for those interested in the longer term, it seems like you are really putting your money where it belongs: in the second half of 2023 and then in 2024, fundamentals are going to be much stronger,” said Eric Ross, chief strategist at Cascend Securities, to Trade Algo earlier this month.

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A.I. plays

As a chief market strategist at SlateStone Wealth and an expert in the semiconductor industry, Kenny Polcari believes Nvidia is a good investment because of its strong position in the semiconductor space.

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With the viral success of ChatGPT - an AI chatbot developed by Microsoft-backed OpenAI - the buzz around artificial intelligence is re-ignited in the wake of its viral success.

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Brad Gerstner, the chair and CEO of Altimeter Capital, echoes the sentiment expressed by Altimeter Capital. Gerstner said on Trade Algo that he has long admired Nvidia, its leader Jensen, as well as the central role they play in the field of Artificial Intelligence. “As evidenced by Project OpenAI and the work that Microsoft and Google are doing over the course of the last two years, we have seen a massive acceleration over the last two years.”

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During the earnings call, Sylvia Jablonski, CEO at Defiance ETFs, cited Nvidia, Advanced Micro Devices, and NXP Semiconductors as "leaders in data centers" and stated that the companies will power the engines of artificial intelligence.

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Asia opportunities

As for UBS, it believes that Asia's semiconductor industry is beginning to emerge with pockets of opportunities.

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“UBS Global Wealth Management believes that leading Asia semiconductor companies will be able to increase their performance in the Asian tech sector as a whole over the next 6-12 months,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note on Friday.

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“Within the sector, we favor memory chipmakers, leading-edge foundries, and select fabless chip designers.”

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As the supply-demand dynamics improve in the second half of the year, margins in Asian semis are likely to improve. In addition, the earnings growth outlook for next year is also expected to improve as well.

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SK Hynix, a chip maker based in South Korea, and MediaTek, a Taiwanese chip maker, are two of the firms' Rand Wrighton, head of international equities at Barrow Hanley Global Investors, likes.

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“A typical sign of a bottom is that you are able to see a decrease in capex by over 50%, and that is exactly what you see when you mark the bottom in a market. We think that the trends in smartphones and servers PCs will improve in the second half of this year, putting stocks in a position to move rapidly, as those green shoots really begin to appear," Wrighton told Trade Algo on Monday.

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Europe stock ideas

The Bank of America has included a raft of chip stocks on its list of “2023 European Best Stock Ideas.”  

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“Bank of America’s analysts, led by Didier Scemama, believe that investors should position themselves for semis to outperform the broader equity markets in the 3-6 months leading up to an inflection in fundamentals in 3Q23”, they wrote.

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Adding to this, the bank stated that the sector will benefit from secular themes such as the reshoring of manufacturing and the acceleration of the electrification and digitalization of industries.

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ASM International is Bank of America's top pick when it comes to investment companies. It also needs to purchase calls on ASML and STMicroelectronics as well