2 Tech Stocks to Buy On the Dip

Lam Research and Texas Instruments could be at a bullish crossroads

Jun 15, 2017 at 11:21 AM
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Tech stocks have been under major pressure recently, after jet-setting to record highs over the past few months. In fact, the Nasdaq-100 Index (NDX) just sent up a signal not seen in three years, and so-called "FAANG" stocks are in the red in spite of upbeat analyst attention. However, if recent history is any indicator, two tech stocks could be flashing "buy" right now: semiconductor names Lam Research Corporation (NASDAQ:LRCX) and Texas Instruments Incorporated (NASDAQ:TXN). Below, we'll take a look at LRCX and TXN shares, and explain why the recent pullback could be a buying opportunity.

LRCX Stock Could Bounce 

Lam Research stock is down 2.7% at $148.64, due to broad sector headwinds. The shares of LRCX are within one standard deviation of their 40-day moving average, after spending a significant time north of this trendline -- a development that's preceded bullish price action in the past. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, a month after the last 13 signals of this kind, LRCX stock was in the black 69% of the time, with an average return of 4.15%.

lam research lrcx stock chart


Prior to the tech sell-off, Lam Research stock was flirting with record highs, peaking at $167.05 last Friday. Nevertheless, short interest represents nearly a week's worth of pent-up buying demand, at LRCX's average pace of trading. Should the stock once again take off after a test of its 40-day, a short squeeze could add fuel to the fire.

TXN Stock Testing 80-Day Moving Average

Texas Instruments stock also touched a new high last Friday, peaking at a 16-year high of $84.65. Since then, TXN shares have retreated along with the broader tech sector, last seen in the $80 vicinity, but history indicates the stock could be ready to bounce. Specifically, TXN stock is within one standard deviation of its 80-day moving average, after a lengthy period above this trendline. Per data from White, after the last eight of these signals, Texas Instruments stock was in the black 71% of the time, with an average return of 4.44%.

texas instruments stock txn chart



Recent options buyers have been upping the bearish ante on TXN. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 2.89 is in the 76th percentile of its annual range, meaning Texas Instruments options traders have picked up puts over calls at a faster-than-usual clip during the past 10 weeks.

Likewise, analysts have yet to buy into TXN's long-term rally. In fact, 12 of 20 brokerage firms maintain tepid "hold" ratings. Should Texas Instruments once again bounce from its 80-day, a round of upgrades or an unwinding of pessimism in the options pits could propel the shares even higher.
 

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