PSA: Don’t Chase the Analog Semis!
- Joshua M Brown
- April 5th, 2011
Y’all know this isn’t a how-to investment site, I have no interest in getting my Suze Orman on here. But! Every once in awhile I feel I should throw out a tidbit here and there that may keep people out of trouble.
It’s quite literally the least I can do.
So here’s today’s Public Service Announcement: DON’T CHASE THE ANALOG CHIP STOCKS!
The articles are already rolling off the presses in the wake of the Texas Instruments ($TXN) – National Semi ($NSM) deal. TI is paying a Texas-sized premium for the chipmaker and now everybody is compiling their list of “who could be next”.
Nobody will be next, at least not any time soon.
Instead, the analog chip stocks will jump up 5 to 7% apiece today and then give it back over the next 5 days. Then you’ll be looking at your portfolio one day and you’ll be all like “What the hell do I own Maxim Integrated Circuits for?”
Analog semiconductors are important, they are everywhere. Your voice is an analog signal, not a digital one, unless you are actually a robot with only a human exterior like Katie Holmes. Semiconductors that convert the analog signal to a digital one are a key part of the wireless growth story. I’m oversimplifying here becuase this isn’t Seeking Alpha, I’m trying to make a quick point not do a book report. The companies making these chips are mostly not high-growth or sexy. And there are way too many of them. Not worth chasing one way or the other.
Arik Hesseldahl at All Things D is compliling his own watchlist:
A Gartner market ranking of analog chip makers ranked TI number one and National fourth. The combination makes TI an even bigger gorilla yet.
Who’s number 2? Analog Devices, ahead of Maxim and Linear Technology, who are numbers three and five respectively in the Gartner rankings. Further down the list you see names like STMicro, On Semi, Intersil and Fairchild.
I’m not saying there’s no play here. Daytraders will probably look to fade the big gap-up opens on a few of these names, especially if the Nasdaq remains weak today. Longer-term investors may take this opportunity to learn these names so that when the hype fades and the shares come back down they can enter, that’s cool too.
But whatever you do, don’t chase a stock up just because its rival gets acquired. Sector consolidations are not like deaths of people you know – they do not happen in three’s.
Slow your roll.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.