Shhh! I Found an Under-the-Radar Semiconductor Stock
The chip sector is hot again and this name has lagged. Here's why and how I'm trading it.
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The trading action under the surface is very poor Monday morning. The Russell 2000 ETF IWM is being hit for a loss of 0.74%, biotechnology IBB is down about 1%, cryptos are weak, and bonds are getting hit. The iShares 20+ Year Treasury Bond ETF TLT is down around 2%.
As is typical, a few big-cap names, such Alphabet GOOGL and Microsoft MSFT are helping to offset the losses, but it is semiconductors SMH that are the leading group right now with a gain of 1.75%.
Breadth is running around 2 to 1 negative, but the Nasdaq 100 QQQ has a gain of 0.22%.
I’ve been raising cash recently, as many of my favorite names don’t appear to have any near-term catalysts to get them moving. There is a lot of bidless action in smaller stocks that may eventually produce great opportunities, but they may languish for a while. I’ll let you know when I start doing more buying.
While I’m not finding many great charts, with the semiconductor group hot again, I’m looking for names that have been under the radar. I was a buyer Monday morning of ACM Research ACMR. Although ACMR is in the very strong semiconductor sector, it has lagged because a big part of its business comes from China.
The company has three primary product groups. The first is cleaning products that are used to clean the surface of semiconductor wafers before they are put into production. The second group is plating the wafers, and the third is advanced plating, which is metal, plastic, ceramic, or glass that protects them.
The market for ACMR's products is growing fast, and management believes that the total addressable market is $16 billion. The company is targeting $1 billion in revenues, up from the current level of $558 million.
In its most recent quarter, sales grew 57%, and EPS was up 126% to $0.43. Shipments have not been as strong as hoped due to some customers building out their facilities. For 2024, ACMR expects shipments to grow faster than revenue, and in the current quarter, shipments are expected to surpass those of the last quarter.
After the strong report, several analysts raised their ratings on the stock. Goldman upgraded ACMR to "buy" from "neutral" and raised their price target to $39. Five "buy" ratings exist, with an average price target of $37.75, which is about 22% above the current price.
Technically, the stock has been forming a trading range after the very strong fourth-quarter report. Momentum traders are looking for a higher high in the $31-32 area before they become more aggressive.
I’ll be looking for further trades as the chart develops.
At the time of publication, Rev Shark was long ACMR.
