According to two traders, semiconductor stocks are at a sweet spot for investors.
A high-boost stock search that exceeds 52-week highs and is worth its powerful valuations has led Danielle Shay of Simpler Trading and Craig Johnson of Piper Sandler to chip makers.
“The space has receded very significantly and a lot of that I think has to do with the shortage of semiconductors,” Shay told CNBC’s “Trading Nation” on Friday.
The VanEck Vectors Semiconductor (SMH) ETF is more than 8% below the 52-week high as of February, and the industry expects insufficient chip supply to last for at least several months.
“I think semiconductors … have a lot of growth potential here. When you’re looking at overall market space over the next few years, the technology will just keep growing,” said Shay, his company 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 backtracking right now, leading to some great long-term entry points.”
Nvidia was also a favorite of Johnson, Piper Sandler’s senior technical research analyst.
“Here 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.
“It has gone very well before we start to see interest rates rise, and frankly, over the last eight months, the stocks have done nothing but go sideways,” Johnson said. “In the technical world, from my perspective, this seems like a stock that rests, consolidates, takes a breather after having had a very significant move.”
Noting that stocks are up about 14% off the February highs, the chart analyst said it saw a “pullback and correction,” not the start of a sharper fall.
“This is a stock that is expected to have a 30% growth in profits,” he said. “So I think this is one of those kind of treasury stocks … that people should buy as they retire and try again the lower end of that trading range.”
Don’t buy them all at once, Johnson said.
“I don’t think you have to build your full position here yet,” he said. “What I would like to see happen is that you go down to try again, start putting the position and if you confirm and start going higher after re-testing this great support area, that’s when I’ll fill out the rest of the position. So I would make two or three … buy as you go in and try this support area. “
Disclosure: Piper Sandler is a registered market maker for Nvidia.
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