In a year that's seen once-heated stocks, including FAANG names, come crashing, it may pay to stick with semiconductors.
Chip stocks -- among the top performers in the past two years -- had a volatile start to the year, as some market watchers had predicted. These stocks have plunged almost 6% in the last few months. But analysts including MKM's Ruben Roy see them moving up in the second half, citing strong demand from data center, automotive and industrial customers and compelling valuations.
"We continue to believe that attractively valued names, with upcoming growth catalysts" are worth buying, Roy said in a research note last month. His top picks include Broadcom Inc.
The Philadelphia Semiconductor Index has eradicated double-digit percentage gains twice this year as investors try to make sense of conflicting trends including US-China trade tensions, continued strength in data-center demand, and a decline in smartphone sales. The gauge is up 9% year-to-date, which can be attributed to big increases from companies like Micron Technology Inc.
"Semiconductor stocks sort of fit our overarching theme about being a little more value oriented," Jefferies strategist Steven DeSanctis said in an interview.
While sentiment surrounding software and Internet stocks is "off the charts," semiconductor companies are less of a momentum trade, DeSanctis said. Last month, he downgraded his recommendation on small- and mid-cap technology stocks to market weight from overweight. US-focused stocks with compelling valuations are likely to fare better for the remainder of the year, he said.
A forecast boost from Intel Corp.
A notable chip name to look out for is Lam Research
Chip-equipment makers and materials suppliers including Applied Materials