Check out the Chips

 | Aug 01, 2014 | 3:00 PM EDT  | Comments
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Stock quotes in this article:

bhe

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ovti

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avgo

Given the popularity of so many different types of electronics, it should be no surprise that the semiconductor industry is doing well.

The Semiconductor Industry Association recently reported that worldwide sales of semiconductors in the first quarter of 2014 reached $78.47 billion, marking the industry's highest-ever first-quarter sales. Sales for March 2014 were up 11.4% from the same month a year earlier. This comes on top of record sales in 2013.

To choose stocks to recommend, I use my guru strategies. These are computerized strategies I modeled from the writings of some of Wall Street's greatest investors. The strategy based on the great mutual fund manager Peter Lynch identified three companies in the semiconductor industry worthy of your attention.

Benchmark Electronics (BHE) provides the fabrication and inspection equipment used to manufacture semiconductors, among other products. The Lynch strategy's most important variable is the P/E/G ratio, which is the P/E relative to growth, and is a measure of how much the investor is paying for growth. A P/E/G of up 1.0 is acceptable, with 0.5 and below considered very strong. Benchmark just makes it into this most desired territory with a P/E/G of 0.49. Another strong plus is that the company has very little debt.

Also look at OmniVision Technologies (OVTI), which makes CMOS (complementary metal-oxide semiconductor) image sensors used in automobiles, digital still and video cameras, medical imaging, mobile phones and webcams, among other devices. OminVision's P/E/G is a very strong 0.32 and its debt level is exceptionally low.

Avago Technologies (AVGO) is another star performer among semiconductor companies. This company designs and develops electronic components, focusing on what is called III-V compound semiconductor design and processing. Its products are aimed at such markets as wireless communications, wired infrastructure, enterprise storage and industrial. Avago's P/E/G is higher than Benchmark's or OmniVision's, but is still a perfectly acceptable 0.94. And it has zero debt.

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