Three Dividend-Paying Semiconductor Stocks to Purchase at Reduced Prices
By: Paul Dykewicz,
Three dividend-paying semiconductor stocks to purchase at reduced prices stand out as rapidly growing companies that trade at valuations so high that prospective investors may prefer to wait until share prices pull back.Seasoned investment professionals chose the following three dividend-paying semiconductor stocks to purchase due to their strength as manufacturers and sellers of products that include computer chips for enabling advanced computing, graphics and visualization. Of course, the ideal time to purchase the semiconductor stocks in 2020 would have been amid the market’s crash in March before share prices rallied quickly just weeks later.
Roughly 49% of the technology-heavy NASDAQ 100 Index (NDX), composed of the 100 largest publicly traded nonfinancial institutions, is weighted in six stocks: Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon.com (NASDAQ:AMZN), Google’s parent Alphabet (NYSE:GOOG), Facebook (NASDAQ:FB) and Tesla (NASDAQ:TSLA). The same six stocks also account for 22% of the S&P 500’s value. Apple specifically topped the $467.77 per share mark on Aug. 19 that it needed to reach a market capitalization of $2 trillion, while Tesla’s share price broke above $2,000 per share on Aug. 20.
NASDAQ, S&P 500 Hit Highs, Aided by Three Dividend-Paying Semiconductor Stocks
Those six stocks helped Wall Street’s broadest index, the S&P 500 (SPX), to close on Tuesday, Aug. 18, at a record high for the first time since the COVID-19 pandemic hit the United States. The S&P 500 closed that day at 3389.78, up 0.2% from its previous record of 3386.15 on Feb. 19.
The new record in the S&P 500 came just five months after its most recent trough to make the COVID-19 bear market the shortest in history. Specifically, the S&P 500 plunged 34% from its Feb. 19 high of 3386.15 to its March 23 low of 2,237.40. The strength of the rebound is shown by a rise of more than 60% in the S&P 500’s technology sector since its low in March.
The NASDAQ Composite Index achieved a new record on Aug. 18 when it rose 0.73%, aided by Tesla soaring above $1,900 per share for the first time in intraday trading before dipping below that mark by the market’s close. On Thursday, Aug. 20, the NASDAQ rose 118.49 points, or 1.1%, to wrap up at 11,264.95 and mark its 35th record high in 2020. On the same day, the Nasdaq-100 index closed at a record 11,477.05, up 158.40 points, or 1.4%.
Three Dividend-Paying Semiconductor Stocks to Buy Attract Successful Investing Editor
“Like all things in life, no two semiconductor stocks are created equal,” said Jim Woods, editor of Successful Investing, Intelligence Report and Bullseye Stock Trader. “Although tech has been a very crowded trade of late, the reason the smart money keeps flowing into tech is because that is where the growth can be found.”
Woods ranks semi stocks on the basis of their combined earnings growth history and relative price strength. He told me his favorite stocks in the segment are, in the following order, 1) NVIDIA Inc. (NASDAQ:NVDA), 2) Advanced Micro Devices, Inc. (NASDAQ: AMD), 3) Qualcomm, Inc. (NASDAQ:QCOM) and 4) Intel Corp. (NASDAQ:INTC).
“Investors looking to add money to semiconductors should concentrate on the two best performers in the segment, NVDA and AMD,” Woods said. “The two companies are leaders in their respective sub-segments of the chip space, and as such both represent the best of the best in those segments.”
Paul Dykewicz meets with Jim Woods before COVID-19 to discuss investment opportunities.
Money Manager Voices Concern about Valuation of Semiconductor Stocks
“Unless you’re simply looking for a quick trading thrill, I would be wary of most of the chip stocks until we see a significant pullback,” said Hilary Kramer, host of a national radio program called “Millionaire Maker” and leader of the GameChangers and Value Authority advisory services. “This simply isn’t a great long-term entry point, especially when the global trade clouds that prevailed before the pandemic are still around.”
NVIDIA, of Santa Clara, California, is a “great company” but the stock seems more likely to fall below $300 than soar beyond $500 and stay there forever, Kramer said. Federal stimulus spending in the trillions of dollars is floating current stock valuations but the money will not “flow forever,” she added.
Chart Courtesy of www.StockCharts.com
Bank of America has a buy rating and a $520 price objective on NVDA. The valuation is at a premium to the sector and reflects NVIDIA’s superior long-term growth profile in large, underpenetrated markets, according to the investment firm.
“Our choice of multiple is in between NVDA’s historical 20x-45x P/E range,” according to a recent Bank of America research report. NVDA’s P/E ratio currently is 89.21, compared to an estimated NASDAQ P/E of 22.34, and it offers dainty dividend yield of 0.13%.
Mark Skousen, PhD, a Presidential fellow at Chapman University, recommended NVDA three times during 2019 and 2020 and produced a profit in each trade both in the stock and in related call options. The largest gain among those trades occurred in February 2020, when he closed out a call option recommendation for an average return of 124.54%.
Mark Skousen, a descendant of Benjamin Franklin, meets with Paul Dykewicz.
Qualcomm Earns Spot Among the Three Dividend-Paying Semiconductor Stocks to Purchase
San Diego-based Qualcomm is a developer, designer and provider of digital telecommunications products and services. It excels at providing technology solutions for connected devices to unlock the speed and capability advances of 5G.
Investors who have a long-term horizon can focus on stocks directly involved with the budding 5G boom. No matter who wins the November election, network buildout will be a priority, Kramer said. Qualcomm creates intellectual property, semiconductors and software and services related to wireless technology. It also has close to an ironclad grip on wireless antenna chips and is available for half the earnings multiple as NVDA, she added.
The stock currently pays a 2.6% yield, which isn’t great but it’s much better than Treasury bonds while investors wait for a growth spike in 2021, Kramer continued.
Chart Courtesy of www.StockCharts.com
Qualcomm’s P/E Ratio Is High Even for Dividend-Paying Technology Stocks
The price-to-earnings ratio of 47.36 for Qualcomm is high, even by technology industry standards, so prospective investors may want to wait for a further price drop before buying the shares. Qualcomm’s total return of more than 70% during the last 12 months leaves room for a pullback with the rest of the high-flying technology sector, Kramer said.
On Aug. 5, Qualcomm announced that its latest premium tier Snapdragon 865 Plus 5G Mobile Platform would power Samsung Electronics Co., Ltd.’s newest flagship devices, including the Galaxy Note20 Ultra and Note20 in select regions, along with the Galaxy Z Fold2 and Galaxy Tab S7/S7+ globally. The Snapdragon 865 Plus is designed to deliver increased performance compared to the previous generation of technology for superior game playing, global 5G and “ultra-intuitive” artificial intelligence (AI).
Intel Joins the Three Dividend-Paying Semiconductor Stocks to Purchase
Intel, a more traditional hardware-oriented company based in Santa Clara, California, is not showing signs a new expansion is on the horizon for years to come, Kramer commented. It has the highest dividend yield of 2.68% and the lowest valuation of the three dividend-paying semiconductor stocks to purchase with a price-to-earnings ratio of 9.03, but its share price is “barely crawling along,” Kramer added.
A global company, Intel supplies advanced technology solutions to the computing industry through semiconductors, microprocessors, chipsets and motherboards. Its CEO Bob Swan announced changes to its technology organization and executive team on July 27 to boost product leadership while sharpening focus and accountability in execution. Intel’s shares rose 1.7% to close at $49.17 on Aug. 20 after the company announced plans for a $10 billion buyback by year-end 2020.
Chart Courtesy of www.StockCharts.com
Inspired by Moore’s Law, a principle that the speed and capability of computers should be expected to double about every 18-24 months due to increases in the number of transistors a microchip can contain, Intel seeks to advance the design and manufacturing of semiconductors to help address its customers’ greatest challenges. By embedding intelligence in the cloud, network and every kind of computing device, the company tries to unleash the potential of data to transform business and society, its officials said.
Bank of America issued a recent research report that noted the semiconductor industry has been driven for the past 50-plus years to build smaller, faster and lower-cost devices to gain higher volumes and revenues. Moore’s Law has been the essential element for predicting the industry. In 1965, Gordon Moore, Intel’s cofounder, observed that the number of transistors in an integrated circuit had doubled and associated costs had been cut in half roughly every 18 months.
Moore’s Law Drives Three Dividend-Paying Semiconductor Stocks to Purchase
However, fulfilling the pace of technology advancement forecast in Moore’s Law has become challenging in recent years. This has been more evident for Intel than its rivals, according to Bank of America.
“Today, it costs approximately $10 billion to build and equip a leading-edge wafer factory, or fab,” Bank of America continued. When Moore’s Law was initially introduced, node transitions occurred every 18 months. The pace of transitions then slowed to two years. More recently, in 2015 Intel extended the cadence of its node transitions to three years.”
Skousen produced profitable trades in Intel stock and call options in May 2012, June 2013 and January 2020. The highest return of 376.47% came in an Intel call options recommendation that Skousen closed in June 2013.
Intel also recently addressed the COVID-19 situation by donating $10 million for global relief efforts and pledging $50 million in a pandemic response technology initiative to combat the coronavirus through improved access to technology in patient care, speeding up scientific research and ensuring access to online learning for students and teachers.
Non-Dividend-Paying Advanced Micro Devices Has a Sky-High P/E Ratio of 161
Skousen recommended computer chip maker Advanced Micro Devices, of Santa Clara, California, on May 12 in his TNT Trader service before it rose 47% prior to pulling back recently with other technology stocks. He advised the sale of the remaining half of his recommended October call options for a 317% gain. When combined with the sale of the first half of the options, the return averaged 226%.
Skousen, who also heads the Forecasts & Strategies investment newsletter, as well as the Home Run Trader, Five Star Trader and Fast Money Alert advisory services, only needed three months to notch a 39.26% gain in Advanced Micro Devices when he closed the trade on Aug. 11. He also profited from the stock in 2018 when it produced a return of 55.53%, along with a 351.64% average gain in the related call options. However, the stock does not pay a dividend and its price-to-earnings (P/E) ratio is a sky-high 161.03.
Wall Street Investment Veteran Discusses Semiconductor Stocks to Purchase
Paul Dykewicz interviews investment guru Bryan Perry at the Orlando MoneyShow.
Bryan Perry, who heads the Cash Machine, Premium Income, Quick Income Trader, Hi-Tech Trader and Breakout Profits Alert advisory services, also likes semiconductor stocks but seeks investments that do not require overpaying. His favorite choice, Inphi Corporation (NYSE: IPHI), a Santa Clara, California-based provider of high-speed data movement interconnects used in data centers flies under the proverbial radar of most investors, does not pay a dividend, nor does it have a price-to-earnings ratio because it fell short of turning a profit in second-quarter 2020.
However, Perry said he sees potential in Inphi, whose revenue in second-quarter 2020 hit a record $175.3 million, up 103.2%, compared with $86.3 million in second-quarter 2019. The increase came from higher demand for cloud and telecommunications products, as well as the inclusion of eSilicon revenues due to an acquisition that closed in January 2020.
SOX Can Identify Three Dividend-Paying Semiconductor Stocks to Purchase
“The Philadelphia Semiconductor Index (SOX) historically is a good indicator of the path of the economy and the general market,” said Bob Carlson, who leads the Retirement Watch investment newsletter. “Since the market bottom in March, the SOX has outpaced the S&P 500 by a wide margin and really separated itself beginning in May.
On occasion, the SOX underperformed the broader market indexes, such as in late July, but those times have reversed quickly, Carlson continued. Prudent investors should wait until the next period when the SOX lags the S&P 500 for a week or so before buying shares of semiconductor sector stocks, he added.
As long as the economy grows, semiconductor stocks should be big beneficiaries, Carlson concluded.
Pension fund Chairman Bob Carlson answers questions from Paul Dykewicz during an interview before social distancing became the norm after the outbreak of COVID-19.
Rising demand for enhanced computer chips will not fade despite COVID-19 infections that have caused 22,683,769 cases and 793,773 deaths globally, along with 5,575,323 cases and 174,283 lives lost in the United States, as of Aug. 21. America has faced the most cases and deaths of any country, including China, where COVID-19 first surfaced.
The three dividend-paying semiconductor stocks to purchase at reduced valuations show strong growth that should propel each of them in the years ahead. For patient investors who are willing to wait for a technology sector pullback that would trim the share prices of all or some of these stocks, the reward would be reduced risk of taking a loss and enhanced prospects of profiting.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others.