Enclosed are three Morningstar reports on Semiconductor stocks. I believe that there are investment opportunities in this sector. Please allow me to explain why.
Over the past two decades, the prospects of the semiconductor industry have primarily hinged on the sales of PCs. Because of this relationship, Intel, whose microprocessor chips were considered a necessity in most PCs, grew into one of largest technology companies in the world. While this relationship between the semiconductor industry and the PC industry is still strong, the use of chips has expanded into new products. For example, MEMS (micro-electro-mechanical) accelerometers, which were used in car airbags, decreased in size and in price. These reductions allowed for the accelerometers to be used in Nintendo Wii. Now these accelerometers are used in many communications and entertainment devices, and their market is projected to grow by 10% annually over the next several years[i].
Another area of growth in the semiconductor sector has been through the demands of the healthcare industry. With the ever-growing need to lower healthcare costs, new technology developed in the semiconductor industry has enabled the creation of affordable home healthcare devices that allow for people to monitor themselves while sending pertinent data to their physicians. This information allows for these people to obtain medical help before the illness potentially becomes a bigger problem, therefore allowing users to save significant amounts of money[ii].
Among these three semiconductor stocks, a larger portion of both revenues and capital expenditures is derived from the growing demand for chips in new consumer devices. Despite this huge growth potential, these three stocks currently trade at dividend yields between 2.51-3.19%, higher than the yield (1.95% as of January 26) on the 10-year US Government Treasury Bond [iii]. Finally, these companies currently generate large amounts of free cash flow which give them the ability to increase capital expenditures to attempt to develop the next cutting-edge technology or return the money to shareholders in the form of increased dividends or stock buybacks.
At Armstrong Advisory Group, we manage wealth for affluent and educated families. You will find three Morningstar research reports enclosed with this material, and please understand that we are not recommending all of these stocks today. We would like to extend to you the opportunity to have your current investment portfolio reviewed. During this review process we will help you determine if any of these three Semiconductor stocks would be appropriate. Our minimum household account size is $250,000. Please call (800) 393-4001 if you would like to have your current investment portfolio reviewed.
[i] Krysiak, Robert. Semiconductor Mega-Trends in 2010. 4 Jan. 2010. Forbes. 29 Sept. 2011. <http://www.forbes.com/2010/01/04/stmicroelectronics-healthcare-entertainment-technology-cio-network-semiconductors.html.>
[ii] Zarola, Tony. Brainstorm: Medical Electronics. 28 April, 2010. ECN Magazine. 29 Sept. 2011. <http://www.ecnmag.com/Articles/2010/04/Brainstorm-Medical-Electronics/.>
*Dividend yield investing may not be suitable for all investors. You should never invest solely on the basis of dividends. Higher dividends will result in lower retained earnings. Investments paying dividends do not carry lower risk. Dividend payments are not guaranteed by the issuing entity. The issuer can discontinue the dividend at any time. Dividend payments reduce the price of the security by the amount of the paid dividend.
Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Armstrong Advisory Group and the Securities America companies are unaffiliated. Representatives of Securities America, Inc. do not provide legal or tax advice. Please consult with a local attorney or tax advisor who is familiar with the particular laws of your state. 10/11
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