Welcome to Episode #142 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
This is the podcast you’ve all been waiting for.
Are the semiconductors cheap? Or are they value traps?
What’s a Value Trap?
Here’s another reminder of the difference between a value stock and a trap. Remember, the traps can look very similar to true value stocks. After all, they are usually cheap and have a bunch of value fundamentals.
How can you tell the difference between a value stock and a value trap?
While the company may have classic value fundamentals, investors need to look beyond the P/E ratio at the “E” of the P/E.
Are the earnings expected to rise, or decline, year-over-year?
If they are on the decline, the stock is likely to be a value trap because that means there is something happening at the company that is causing it to struggle to grow.
Investors want earnings growth, not decline. The “E” in the P/E should not be on the decline.
5 Semiconductor Stocks: Values or Traps?
1. Micron MU has a forward P/E of 5.4. It’s dirt cheap. Many thought the cycle had bottomed in December 2018. But has it? The earnings estimates tell the tale.
2. Broadcom AVGO is trading at 11.8x. It’s cheap. Shares have fallen 13% over the last month on the trade worries. How are the earnings looking for this fiscal year?
3. NVIDIA NVDA has a forward P/E of 28, so it doesn’t qualify as a “value” stock just based on P/E alone. But it’s worth checking in on its earnings to see what they are looking like. Does this popular company have the earnings growth to support that P/E?
4. Lam Research LRCX is trading with a forward P/E of 12.8. Year-to-date, shares are up 37%. Impressive. Could it avoid being a value trap?
5. Vishay Intertechnology VSH has a forward P/E of just 9.7. This is a hidden semiconductor as it’s headquartered in Pennsylvania, not Silicon Valley. Year-to-date, the shares are down 8.7%. Which way are earnings expected to move in the next year?
Restrictions on what Huawei can buy from US companies have also hit this sector hard.
What other issues are going to impact earnings over the next six months?
Find out all about the semiconductors on this week’s podcast.