: SOX semiconductor index could double over the next couple of years, analyst says

by | Jun 28, 2022 | Stock Market

Despite potential for further downside, semiconductor stocks could rebound significantly over the next couple of years, according to Columbia Threadneedle Senior Equity Analyst Dave Egan. Semi stocks have struggled this year, mirroring concerns about the broader economy. There has also been pessimism about the chip sector following mixed forecasts in the second quarter and worries that customers may have overbought amid supply-chain issues.

The S&P 500
SPX,
-2.01%
has fallen 19.8% this year, while the PHLX Semiconductor Index
SOX,
-2.63%
is down 33%. See also: Pessimism on chip stocks is hitting a new high, and the money seems to be flowing toward software Speaking during a media roundtable on Tuesday, Egan pointed to contraction in valuation multiples in the two indices. “For both, the price-to-earnings multiples are just about are five to 10% above the trough that we saw in 2018,” he said. “Part of the lower multiples is because of higher interest rates,” he said. “But it’s also because people are anticipating that estimates are going to be coming down.” A typical semiconductor downturn compared to current Wall Street estimates would suggest that sales estimates are about 15% too high, according to Egan. However, the analyst noted the cyclical nature of the semiconductor market. “This is a cyclical sector — a downturn would be followed by a recovery and then with that recovery in the fundamentals, you would get a recovery in valuation multiples back to about normal,” he said. “What you could see in the near term is further downside, but you essentially eventually get a bottoming process, and then over the next coupl …

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