• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

Semiconductor Rally Offers Opportunity in Some Old School Stocks

The semiconductor sector surge could send some standby industrial stocks higher with it.
By KEVIN CURRAN Apr 03, 2019 | 03:49 PM EDT
Stocks quotes in this article: ITW, MMM, HON, DWDP, NVDA, AMD, TSM, MU, LRCX

There could be some old school industrial names set to benefit from a semiconductor market recovery.

The chip sector is surging on Wednesday as a confluence of factors from a potential recovery in smartphone sales, analyst initiations, and warming trade talks encourage investors.

Yet the reach could be further than the traditional tech-focused semiconductor stocks such as Nvidia (NVDA) , Advanced Micro Devices (AMD) , Taiwan Semiconductor (TSM) , and Micron Technology  (MU) . Possibly overlooked amid the action is the benefit available to traditional industrial companies like the newly spun off DowDuPont (DWDP) through its DuPont subsidiary, Illinois Tool Works (ITW) , 3M (MMM) , and Honeywell (HON) .

While those names might not be the first ones investors think of when interested in the high-tech space, the manufacturers are highly integrated into the supply of semiconductor materials and semiconductor packaging.

For reference on the size of the portfolios at these massive conglomerates, a February analyst presentation from DowDuPont noted that the DuPont subsidiary possesses "the largest portfolio of products in the semiconductor industry."

Illinois Tool Works, meanwhile, draws 15% of its revenue from electronic components and manufacturing that relies strongly on the semiconductor strength.

The connection to the space stung results onto the back half of the year for many of the more traditional industrial names.

"Advanced Materials sales were down 3% on an organic basis as continued strong demand and adoption of our Solstice line of low global-warming refrigerants, which was up 5%, was offset by declines in specialty products, particularly in our electronic materials business, which is in the semiconductor space," Honeywell CEO Darius Adamczyk told investors when reviewing fourth-quarter results in February.

Illinois Tool Works CEO Scott Santi noted the space's conservatism on 2019, declining to model in the turnaround that some companies had already begun to tout earlier this year.

"In the past, there have been talks about pause, and then a pick up again in the back end of 2019," he acknowledged in February. "And we've taken all that out and basically assumed current run rate based on what we saw in Q4 and, therefore in our view, appropriately, risk-adjusted for any exposure in semiconductors."

As such, any actual rebound to come would only serve to help revise upward past estimates for the dividend king.

While some investors were equally cautious on the major industrial names earlier this year, the call of a bottom by companies such as Lam Research (LRCX) actually should have served as a signal to buy the sector-exposed stocks.

Action Alerts PLUS portfolio manager Jim Cramer noted the correlation in February, advising Honeywell as a key pick if a bottom was truly placed in.

"If this rally in the semiconductor cohort is right, if it's accurately forecasting the future, then you want buy Honeywell," he said at the time. Honeywell stock has run double digits since that point, slightly edging even ITW's 10% gain.

The second signal that the second half is turnaround time could be an opportunity for investors too reticent to take advantage of the first sign.

To be sure, these companies remain subject to the inventory pressures that have created problems for the traditional semiconductor names in recent months, which poses cyclical risks if forecasts so far end up being overly bullish.

However, for investors looking for a more diversified strategy to play the likely inevitable long-term increase in demand for chips, it might not hurt to start with some of the hallmark companies of American manufacturing. The dividends don't hurt either.

(Lam Research, Honeywell, Nvidia and DowDuPont are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells DWDP, NVDA, or LRCX? Learn more now.)

How Much Money Will I Need to Retire?

Want to learn about retirement planning from some of the nation's top experts? Join TheStreet's Robert "Mr. Retirement" Powell live in New York on April 6 for our Retirement Strategies Symposium. For a limited time, tickets are available for $99 for this full-day event. Check out the agenda, learn about the speakers and sign up here.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from trading individual securities.

TAGS: Dividends | Investing | Markets | Stocks | Materials | Semiconductors & Semiconductor Equipment | Conglomerates | Industrials | China | Stock of the Day

More from Stocks

Is This Market More Than Overdue for a Pause?

Bret Jensen
Feb 3, 2023 10:30 AM EST

We are probably at or very near the highs the market will provide at least through the first half of year.

Is Redfin's Stock Ready to Make a Sustained Recovery?

Bruce Kamich
Feb 3, 2023 9:04 AM EST

RDFN will need more compelling base building.

Jobs Day, FOMC, Underwhelming Earnings, Thursday's Market, Trading Alphabet

Stephen Guilfoyle
Feb 3, 2023 7:26 AM EST

Technically, you do have all of the confirmation that you need to support a broad equity market breakout at this point.

Will a Weak Employment Report Be Good News for the Market?

James "Rev Shark" DePorre
Feb 3, 2023 7:02 AM EST

Bad economic news may not be the market positive it once was, especially when earnings are mediocre and the market is technically extended.

Amid Market Chaos, This Stock Strikes a Chord

Paul Price
Feb 3, 2023 7:00 AM EST

Let's learn how to tune out investing 'noise' and focus on what matters.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:10 PM EST REAL MONEY

    Fed Rate Decision

    Fed Lifts Benchmark Rate by 25 Basis Points, Sees ...
  • 12:27 PM EST REAL MONEY

    LIVE EVENT: Chris Versace and "Sarge" Guilfoyle Share Their Stock Market Insights

    This Monday, Jan. 30, at 12 p.m., our very own exp...
  • 11:48 AM EST REAL MONEY

    Watch Doug Kass on the Daily Rundown!

    In today's Action Alerts PLUS Daily Rundown, Doug ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login