The Facts Behind This Industry in Turmoil

Folks, I’m sure you’ve seen it on the news – and felt it in real life, too…

We’re living in the era of the “everything shortage.” And that’s especially true when it comes to semiconductors. (That’s the industry term for computer chips.)

The semiconductor shortage has hit just about every industry in recent months…

For example, consumer-electronics giant Apple (AAPL) expects to make 10 million fewer iPhones than it wants due to the shortage. And nearly every automaker was forced to cut back production this year as well. (Modern cars use thousands of these chips.)

The issue is so serious in the auto industry that Detroit-based rivals Ford Motor (F) and General Motors (GM) are taking matters into their own hands… Both automakers recently announced plans to work with chipmakers to develop the parts they need themselves.

Obviously, the semiconductor industry is in turmoil today. So it would be natural to think you should avoid this group altogether. But as always, it pays to do a little research…

What if you could do a deep dive into every major player in the semiconductor space just by clicking a button? What do you think you would find?

That’s where our proprietary Power Gauge system comes in… The Power Gauge rates more than 4,000 stocks daily using 20 factors that the professionals use on any given day.

These factors cover four major categories – Financials, Earnings, Technicals, and Experts. They include things like the ratio of a company’s long-term debt to its equity, short interest, relative strength compared with the overall market, and free cash flow.

Those are just a few of the 20 factors in the Power Gauge… And they’re powerful when used together.

Let’s see what the Power Gauge says about the semiconductor industry today…

The best way to do this is to use an exchange-traded fund (“ETF”) that invests in a basket of companies from within this industry. We’ll use the VanEck Vectors Semiconductor Fund (SMH) because it’s the most popular ETF related to this space.

Today, this ETF includes more than 20 companies. And as you can see in the screenshot below, the Power Gauge rates 15 of these companies as “bullish” and eight as “neutral.” The system isn’t “bearish” on any of these stocks right now…

Chaikin PowerFeed SMH

That’s the opposite of what individual investors might expect from an industry in turmoil.

And that’s why the Power Gauge is so powerful for investors… There are no emotions built in. The system simply reacts to the data it has – much like the semiconductors in your car.

Chipmakers have done everything possible to keep their production lines running. And you better believe those companies are doing everything they can to meet current demand…

Consumer spending is at an all-time high today.

Not surprisingly, the same is true in the semiconductor space… The latest numbers from the industry show that semiconductor sales are hitting new all-time highs this year as well.

So in other words… while the semiconductor industry is enduring the headwind of a severe supply crunch right now, it’s being fueled by an ongoing surge in demand.

That’s the silver lining… Demand isn’t going away. It’s still hitting record highs.

By using the Power Gauge to look deeper at the 20 factors behind each semiconductor business, we’re able to see the big picture. And the results are clear…

Right now, 15 of the 23 stocks in this semiconductor ETF earn a “bullish” or “very bullish” rating from the Power Gauge. And none of these stocks earn a “bearish” rating today.

So it’s true that we’re in the middle of a semiconductor shortage. And it’s causing turmoil across many industries, too.

But that doesn’t mean you should be bearish on the semiconductor industry itself.

Good investing,

Pete Carmasino

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