How To Find The Right Semiconductor Stock For Your Portfolio…

When an industry has so many dominant players, it can be difficult to find the clear winner. You could buy several companies in the same industry and increase your exposure to the sector, but with proper risk management and allocation, not many do this. And for good reason.

Overweight portfolios aren’t optimized for the ebb and flow of the stock market, increase your risk. Being overweight growth stocks means that in the event of a bear market, your portfolio is going for a ride.

So how does someone looking for exposure to the semiconductor industry find the best stock that deserves that spot on their watchlist or in their portfolio? Easy, you compare the stocks.

There are several ways to skin the cat. I prefer to see which stock had the best return over the past five years as opposed to getting into the company’s fundamentals. In reality, comparing the stocks’ performance over a couple year period helps you get a better idea of the levels that are important.

Let’s take a look at a basic comparison of some of the top chip stocks in the world, some of which I am certain are either on your watchlist or in your portfolio. And if they aren’t, now is the time.

Initially, I thought Nvidia (NVDA) would be the favorite, as they have been the strongest stock. But depending on your time frame, you may get different results. Five years gives me a wide enough view to get a clear picture of who the better company has been. Once I updated the time frame, I was surprised to find out that Advanced Micro Devices (AMD) actually had the stronger past 5 years.

As famous Wall Street investor, Peter Lynch, writes in his book, “One Up On Wall Street…”

“If you can follow only one bit of data, follow the earnings. I subscribe to the crusty notion that sooner or later earnings make or break an investment in equities. What the stock price does today, tomorrow, or next week is only a distraction.”

Now, I’m not quite sure if AMD has had better earnings reports quarter-over-quarter than NVDA, but I do know one thing, they must’ve been pretty good to net an almost 50% return in 5 years.

Compare the historical performance of your favorite stocks and see how they stack up against one another. The stock with the highest capital appreciation should be the clear front runner for your next watchlist.

After all, the goal of investing is to grow your money as efficiently and consistently as possible. In this case, maybe past performance does not guarantee future performance, but it might just predict it.

Today’s feature: Comparing Semiconductor Stocks