Semiconductor Stocks Are Still Cheap

Semiconductor stocks are hitting new highs.

Even so, as a group they appear undervalued as compared with the benchmark S&P 500 Index.

This is especially so when you factor in their superior growth rates for sales, earnings and cash flow.

The data is provided by FactSet.  The PHLX Semiconductor Index is now trading for 16.1 times consensus earnings estimates for the next 12 months.  Meanwhile, the S&P 500 is trading for 17 times estimates.  Both have gotten cheaper by this measure.  Nevertheless, one can argue that the semiconductors appear to be an even better bargain than they did in November.

Therefore, the analysts expect some cooling off for the semiconductor group this year.  However, they still forecast that the semiconductors will put up much better sales and cash flow numbers than the S&P 500.

Micron Technology Inc. (MU) has the lowest forward P/E valuation by far among components of the PHLX Semiconductor Index.  Even if you look at the 45 semiconductor and electronic-production equipment manufacturers in the S&P 1500 Composite Index, Micron is still the cheapest.  This is so even after a 57% increase in sales per share over the past 12 reported months from the previous 12-month period.

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