Chip stocks may finally be catching a break. J.P. Morgan and Deutsche Bank both issued upgrades to the semiconductor sector today, saying that earnings, gross margins and other indicators have bottomed out after a punishing 2006. While most of the market did well in 2006, chip stocks were laggards — the Philadelphia Stock Exchange Semiconductor index fell 2.5% for the year after a strong 2005.
That may not sound like much, but Deutsche Bank’s Nicolas Gaudois notes that after peaking in late Jan. 2006, the index fell 15% for the rest of the year, which he says by “most historical metrics, this level of underperformance would constitute a ‘normal’ cyclical correction.”
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