What are we looking for?
U.S. semiconductor stocks showing strong price momentum and solid profitability, supported by favourable Quantamental factor ratings.
U.S. semiconductor stocks are beginning to reassert their leadership within the U.S. equity market. The relative performance ratio of the Dow Jones U.S. Semiconductor Index versus the S&P 500 has recently started to move higher again, signalling possible renewed strength in the sector as investors continue to focus on companies benefiting from the growth of artificial intelligence, cloud infrastructure and advanced computing.
The screen
Using Trading Central Strategy Builder, we screened for U.S. semiconductor stocks demonstrating strong profitability and improving price momentum.
The screen looked for companies with operating margins of at least 15 per cent and positive price performance over the past four weeks. Operating margin is particularly important in the semiconductor industry because it helps identify companies with strong pricing power, efficient cost structures and differentiated products – characteristics often associated with industry leaders.
We also incorporated Trading Central’s Momentum Factor Rating, which captures the tendency of winning stocks to continue outperforming, based on risk-adjusted three-month and 12-month price momentum.
We then focused on the highest-ranked companies using Trading Central’s Quantamental rating methodology. The TC Quantamental Rating is a proprietary stock-ranking system developed by Trading Central that covers more than 50,000 stocks worldwide. The rating scores companies on a scale from 0 to 100, with 100 being the most bullish outlook and 0 the most bearish. The model evaluates companies using a 20-factor framework that combines valuation, growth, quality, price momentum and income metrics to rank stocks.
We have also included 52-week and year-to-date price performance for your reference.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, foreign exchange, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and around the globe.
What we found
Topping our list is Micron Technology Inc. MU-Q, a leading U.S. semiconductor manufacturer specializing in memory and storage solutions used in data centres, artificial intelligence and advanced computing. With a market capitalization of about US$471-billion and an operating margin of 32.6 per cent, the company stands out for its strong momentum profile, earning a TC Momentum Factor Rating of 96 and a Quantamental Rating of 57. The stock has surged 58.8 per cent over the past four weeks and is up 32.7 per cent year-to-date, delivering an impressive 337.8-per-cent gain over the past year as demand for memory used in AI infrastructure continues to expand.
Also appearing near the top of the screen is Taiwan Semiconductor Manufacturing Co. Ltd. TSM-N, the world’s largest contract chip manufacturer and a critical supplier to many of the world’s leading technology companies. With a market capitalization of about US$1.58-trillion and a sector-leading operating margin of 50.8 per cent, the company ranks highly on Trading Central’s factor models with a Quantamental Rating of 61 and a Momentum Factor Rating of 88. The shares have gained 14.3 per cent over the past four weeks and 10.9 per cent year-to-date, delivering a 100.1-per-cent return over the past year.
For investors seeking broader exposure to the same quantamental principles used in our stock screen, the recently launched Solactive TC Quant US 50 Index applies Trading Central’s full quantamental method to the U.S. equity market. The index selects the 50 U.S. companies with the strongest combination of valuation, growth, quality, momentum and income factors, and the same framework behind TC’s Quantamental rating. The result is a simple, rules-based approach to owning a diversified portfolio built on the same strategy highlighted in this Number Cruncher.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.