Chip Sector in the Earnings Spotlight

As earnings season continues to pick up steam, the semiconductor sector will be in the spotlight this week with five major chip-makers releasing earnings reports over the next three days.

The semiconductor sector has performed incredibly well over the past year. The chart below shows that the VanEck Vectors Semiconductor ETF (NYSE: SMH) outperformed all of the select sector SPDR funds in the last year. The SMH gained 48.2 percent, beating out the Technology Select Sector SPDR (NYSE: XLK) which chip companies likely helped to its 39 percent gain.

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Chip companies did slip a little at the end of November through the beginning of December and this actually allowed some of the other sectors to catch up a little, otherwise the difference in performance would have been greater.

The five stocks that report this week are Texas Instruments (Nasdaq: TXN), Xilinx (Nasdaq: XLNX), Lam Research (Nasdaq: LRCX), Maxim Integrated Products (Nasdaq: MXIM), and Intel (Nasdaq: INTC). All five performed well over the past year, but LRCX has had an incredible run, gaining just under 90 percent over the past year. INTC has been the laggard of the group, but still managed to gain 26 percent over the past year. INTC has been under fire in recent weeks as a critical flaw was revealed that puts computers at risk for security hacks.

As for the earnings reports and what can be expected, I put together this table showing the five companies, the EPS Estimate, the 10-week RSI level, and where the sentiment stands currently.

The 10-week RSI level shows how overbought TXN is and the sentiment is pretty bullish toward the stock right now. Given those circumstances, it is probably the most vulnerable to disappointing investors, just because expectations are so high. LRCX hasn’t bounced as much as the other companies since the pullback at the end of November and that has kept the RSI from jumping back in to overbought territory, but the sentiment is a little too bullish. It isn’t extremely bullish, but just a little higher than I would like.

XLNX and MXIM have neutral readings on their sentiment readings, but are in overbought territory based on the traditional demarcation point for the RSI of 70. The only one that isn’t in overbought territory and doesn’t have a terribly optimistic sentiment reading is INTC, and it has been under pressure as I stated above.

So what do you do with this information? If you own one of these stocks, I don’t see any reason to sell any of them before the earnings report. At the same time, I don’t see any of them that I would buy before their earnings report either. There are always risk ahead of an earnings report, just like there is also the potential upside surprise that drives the stock higher. But in the case of these five companies, none of them are setting up for a big surprise in either direction.

You should still keep an eye on the reports as they could surprise in either direction and an opportunity may arise after the reports.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.

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