The Brooklyn Dodgers became the ultimate “wait till next year” team after World War II…
They won National League championships in 1941, 1947, 1949, 1952 and 1953. But each time, they lost in the World Series to the hated crosstown rival New York Yankees.
Next year eventually came for the Dodgers…
In 1955, they beat the Yankees for their only World Series title in Brooklyn. Then, two years later, the team headed to the West Coast and became the Los Angeles Dodgers.
Sometimes, investors channel the Brooklyn Dodgers in the markets…
They take a “wait till next year” approach. By that, I mean they buy with the mindset that today’s stock prices accurately reflect expectations of a company’s future growth.
On January 20, I shared one example – homebuilder stocks. Then, on February 3, I detailed why falling earnings shouldn’t be a dealbreaker with chipmaker Skyworks Solutions (SWKS).
Now, let’s discuss how this theme is spreading through one specific industry today…
As my colleague Marc Chaikin noted last week, tech stocks are making a comeback…
The Power Gauge supports the potential upside in this space. It grades both the Technology Select Sector SPDR Fund (XLK) and the Invesco QQQ Trust (QQQ) as “very bullish.”
But keep in mind…
Technology is a broad definition. This sector encompasses several different industries. And they’re not all doing well today.
According to the Power Gauge, the hottest part of the tech sector is the semiconductor industry. You can see what I mean with the Power Bar ratio for this space…
That’s an impressive breakdown. It might even lead you to believe that big things are coming for semiconductor sales and earnings in the coming year.
But that’s not the case…
The semiconductor group is the worst in the tech sector in terms of sales and earnings. Its median forecasted 12-month sales and earnings declines are 2% and 17%, respectively.
For the tech sector as a whole, analysts expect sales and earnings to rise 9% and 13%, respectively.
People are buying fewer tech gadgets. So it’s clear that companies will sell fewer semiconductors over the next year.
But today, these firms have a far larger pool of potential customers than in the past…
Artificial intelligence (“AI”) is a big topic these days.
I have no idea if AI will ever prove to be profitable. But whether it becomes the next big thing or not, companies working on this technology will buy many semiconductors.
And does anybody think wireless progress will stop with 5G technology?
Companies are already working on 6G. And they’ll need a ton of semiconductors.
The “Internet of Things” – machine-to-machine communication – is growing. Health care is digitizing. Data centers need more power. Electric grids are in need of improvements.
All these tech-related efforts require more semiconductors.
So yes, it would be better if sales of the latest gadgets remained strong. But today’s chip bulls can live without that as long as the future remains bright…
Like the post-World War II Brooklyn Dodgers, investors rightfully see long-term potential.
We might have to wait till next year. But when the upcycle begins, it will be huge.
Good investing,
Marc Gerstein
