The Philadelphia Semiconductor Index is outperforming the broader market this year, but it hasn’t only been the chip stocks that have been on the rise—the companies that help design them are on a tear as well, according to Richard Valera, senior analyst at Needham & Company, and Dan Berenbaum, managing director and senior analyst at Auriga USA.
Berenbaum began on a cautious note:
“Semiconductors have outstripped the broader economy and are likely due for somewhat of correction, so we're cautious as a whole—particularly the cyclical names over the course of the next year,” he told CNBC.
“The consensus estimates are a little bit too high," Berenbaum said—but then added, "which is not to say there aren’t good stories within semiconductors.”
For example, Berenbaum said he still remains bullish on Intel . However, he is “negative” on Sandisk .
In the meantime, Valera said design automation (EDA) software stocks—software used to design chips—have historically lagged the semiconductors by about a year. (Scroll down for his full picks.)
“We saw the recovery in those stocks start in the middle of 2010 and we’ve seen strong results since then. And we think they’re poised to continue to do well at least through 2011, perhaps into 2012 as they tend to lag the semiconductor cycle."
Scorecard—What He Said:
- Berenbaum's Previous Appearance on CNBC (Oct. 25, 2010)
CNBC Data Pages:
Berenbaum does not own shares of INTC, NVDA, SNDK or EZCH.
Valera does not own shares of CONS, LAVA, MENT or SNPS. Needham & Company makes a market in CONS, LAVA, METN and SNPS. In addition, LAVA currently is or during the past 12 months was a client of Needham & Company and received non-investment banking securities related services.