Goldman Sachs Shares Semiconductor Stock Picks For A Challenging 2019

The deceleration witnessed in the semiconductor space in the second half of 2018 is likely to continue into 2019, making it another challenging year for the stocks, according to Goldman Sachs.

The Analyst

Analyst Toshiya Hari has the following ratings and price targets for semiconductor stocks in his coverage universe:

• Keysight Technologies Inc KEYS: Buy/$76
• NXP Semiconductors NV NXPI: Buy/$94
• NVIDIA Corporation NVDA: Buy/$184
• Xilinx, Inc. XLNX: Buy/$95
• Advanced Micro Devices, Inc. AMD: Neutral/$25
• Analog Devices, Inc. ADI: Sell/$79
• Intel Corporation INTC: Sell/$44
• Maxim Integrated Products Inc. MXIM: Sell/$43
• Versum Materials Inc VSM: Sell/$26
• Entegris Inc ENTG: downgraded from Buy to Neutral/$30

The Thesis

The cyclical upturn in the semiconductor sector halted in the second half of 2018 with a decline in memory prices, push-outs in semiconductor equipment and weakness in industrial and automotive semis, Hari said in a Tuesday note.

Consequently, the Philadelphia Semiconductor Index underperformed the S&P 500 Index by 157 basis points, the analyst said.

Hari said he's bracing for another challenging year in 2019, particularly the first half given that semiconductor shipments are 10 percent above the long-term trendline, supply chain inventory remains elevated and the potential exists for downside to Street estimates.

Semi stocks are likely to continue to underperform as the industry adjusts supply to waning demand, Hari said. 

Among the subsectors, Goldman is least negative on semiconductor capital equipment stocks, as the analyst said they've already priced in a downturn. Goldman expects more capex cuts, especially from memory companies.

When it comes to individual stock picks among semis, Hari said he favors "names that have idiosyncratic growth levers, minimal exposure to the troubled end-markets ... and/or positively skewed risk-reward."

The Price Action

The iShares S&P NA Tec. Semi. Idx. Fd. SOXX was declining 0.62 percent to $157.31 at the time of publication. 

In 2018, the ETF lost about 6.5 percent.

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