Following Declines, Chip Stock Bargains Available

For example, the VanEck Vectors Semiconductor ETF (SMH A-) is off 23% year-to-date. The good news is that following those declines, it’s not a stretch to say that there are some bargains to be had in the technology sector, and the semiconductor space is fertile territory for identifying some of those discounted names.

“Among those hit hardest were semiconductor stocks. Industry giant Advanced Micro Devices (AMD) now trades at a price Morningstar analysts see as undervalued. A total of 69 companies, more than half of the 136 U.S.-listed technology stocks covered by Morningstar, are now considered undervalued and have a rating of 4 or 5 stars,” notes Morningstar analyst Jakir Hossain.

Advanced Micro Devices accounts for 4.38% of SMH’s roster, but the VanEck ETF is home to several stocks that are now inexpensive. That group includes Applied Materials (NASDAQ:AMAT), which commands a weight of 4.3% in SMH. Easing supply chain woes could be a catalyst for Applied Materials shares later this year.

“Like many other semiconductor firms, the tool vendor has been struggling with supply chain problems that has been preventing them from meeting demand. Orders have remained strong despite supply shortages, their backlog grew by $1.3 billion to $8 billion in the fourth quarter. While near-term supply chain headwinds are pressuring margins, Morningstar’s technology sector strategist Abhinav Davuluri anticipates them to improve over the course of the year,” adds Hossain.

Another SMH holding that’s grappling with supply chain issues and is now more attractive on valuation is KLA (NASDAQ:KLAC). That provider of services to chip makers accounts for 3.89% of SMH’s portfolio. Morningstar says that the shares are currently undervalued by 15%.

Another bargain idea in the SMH portfolio is Microchip Technology (NASDAQ:MCHP), which accounts for almost 3% of the ETF’s weight.

Microchip Technology “reported record revenue of about $1.76 billion in the fourth quarter of 2021, up 30% year over year. While the company has been struggling with supply shortages, revenue is expected to remain robust in 2022,” according to Morningstar.

Some other SMH member firms make the Morningstar list of now undervalued tech names. Those include Micron Technology (NASDAQ:MU) and On Semiconductor. That pair combines for just over 6% of SMH’s lineup.

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