By Philip van Doorn, MarketWatch
Semiconductor stocks aren’t for the faint of heart. But if you can withstand the volatility, they have proven to be excellent long-term investments.
The group has been greatly affected by the trade conflict between the U.S. and China, as computer chips are the U.S.’s third-largest export, according to the Semiconductor Industry Association. Next year, however, promises to be a return to growth.
The iShares PHLX Semiconductor ETF /zigman2/quotes/209255350/composite SOXX -0.0034% , which tracks the shares of 30 semiconductor manufacturers and equipment makers, has returned 33% this year through Oct. 8, almost double the return of the benchmark S&P 500 Index’s /zigman2/quotes/210599714/realtime SPX +0.27% 17.2% gain. (All returns in this article assume dividends are reinvested.)
Now look at the 12-month chart:
You can see how the fourth quarter of 2018 punished stocks, which rebounded at the beginning of 2019. The semiconductors have outperformed the broader market by a mile, and analysts are expecting a tepid 2019 to give way to a resumption of “normal” sales growth, at least for most of the semiconductor group, in 2020.
Before getting to those numbers, check out these longer-term charts that emphasize how well investors who can tolerate the elevated volatility for the semiconductor group have been rewarded.
The 10-year chart shows plenty of periods of misery for semiconductor stock investors, but patience has won out. And there’s no reason to believe these companies won’t continue to grow as more devices become connected throughout the world. You can pick one of many industries as examples — auto manufacturing is one, with more microprocessors needed as the industry is forced to evolve.