Our semiconductor picks

Semiconductors are a volatile business, but do your homework and you can find cheap buys.

Semiconductors are a volatile business, but do your homework and you can find cheap buys. Some suggestions:

Entropic Communications (NASDAQ: ENTR)
This San Diego company is tapping into the growing home-networking business. It builds the chips that allow people to connect their DVD, TV and computers to one network. Sprott portfolio manager Peter Hodson says it’s doubling sales this year but it hasn’t yet grabbed the attention of the herd. It’s trading at nine times earnings, has an 80% share of its market niche and a $700-million market cap. “It’s dying to be taken over,” he says.

Intel Corp. (NASDAQ: INTC)
Intel, based in Santa Clara, Calif., is easily the world’s most famous semiconductor company. It manufactures microprocessors, motherboards, wireless products and more. It’s trading at nine times earnings because, says Hodson, “people hate it.” There’s a perception that it’s missing the boat—it’s not big in the tablet market right now—but it has so much cash it could easily make an acquisition to get into that field. “It’s like Starbucks four years ago,” says Hodson. “Everyone thought it was over, but it’s not.”

Analog Devices (NYSE: ADI)
Analog Devices, based in Norwood, Mass., has its fingers in a lot of pies, but it’s the business of making chips for cellular networks that Tera Capital’s Howard Sutton likes best. It’s not the cheapest stock of the bunch, trading at 14 times earnings, but with more cellular base stations still needed to be built, growth is a given. “If you believe in the expansion of cellular networks, then this is their area of expertise,” says Sutton.

Kevin Landis, a Firsthand Funds portfolio manager, likes the solar business. Most solar cells use silicon semiconductors, and the more attention paid to the alternative energy, the more these chips will be in demand. GT Solar, based in Merrimack, N.H., is one of his favourites. The company is selling out of product, growing quickly and trading at a cheap nine times earnings.

Hoya Corp. (TYO: 7741)
Investors looking to play Japan’s volatility should consider this company. It holds 80% of the global market for mask blanks, a piece of glass that’s integral to semiconductor production. It also has a health-care division and makes medical imaging devices, so it’s more diversified than most chipmakers. The stock price is down 11% since the earthquake, but according to the company, its supply and production haven’t been affected.