Semiconductor stocks are a great option for investors, two traders said.
A search for high-momentum stocks well out of their 52-week highs and perhaps worth their high ratings led Danielle Shay of Simpler Trading and Craig Johnson of Piper Sandler to chip makers.
“Space has shrunk significantly and a lot of that I feel has to do with the scarcity of semiconductors,” said Shay on Friday at CNBC’s “Trading Nation”.
VanEck Vectors Semiconductor ETF (SMH) is more than 8% below its 52-week record since February, with the industry hoping that the chip shortage will last for at least several months.
“I think semiconductors … have great potential for growth here. When you look at the overall market space over the next few years, the technology will only continue to grow,” said Shay, director of options. “Nvidia is one of my favorites. I like Taiwan Semiconductor and I also like Advanced Micro Devices. All of these companies are backing down now, leading to some excellent entry points in the long run.”
Nvidia was also a favorite of Johnson, a senior technical research analyst at Piper Sandler.
“This is a stock that has clearly been one of the best names in the semiconductor space,” he said in the same interview, referring to a stock chart.
“He did extremely well before we started to see interest rates go up and, frankly, for the past eight months, the stock has done nothing but move aside,” said Johnson. “In the technical world, from my perspective, this looks like an action that is just resting, consolidating, taking a breath after having made a very significant move.”
Noting that the stock is about 14% below its February highs, the chart analyst said he is seeing a “retracement and correction”, not the beginning of a more steep decline.
“This is a stock that should have a profit growth of more than 30%,” he said. “So I think this is one of those types of treasury stocks … that people should be buying, as it backs up and re-tests the bottom end of this trading range.”
Don’t buy everything at once, though, Johnson said.
“I don’t think you need to build your full position here yet,” he said. “What I would like to see happen is that you are going down to test it again, start putting the position and if you confirm and start going up after testing that big support area again, that’s when I would fill the rest of the position So, I would do two or three … purchases when you come in and test this support area. “
Disclosure: Piper Sandler is a registered market maker for Nvidia.
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