The Dogs of the Dow is an old investment strategy that targets this year’s losers as potential winners for next. The idea is that cyclical stocks like the Dow components ebb and flow over time; buying them when they are down should provide a good return over time. Technology stocks are also cyclical, ebbing and flowing with economic conditions, suggesting the Dogs theory can be applied to them. Because economic tailwinds are expected to form in 2025 as lower interest rates combine with incoming President Trump’s business-friendly policies, it is a good year to expect cyclical semiconductor tech stocks like GlobalFoundries (NASDAQ: GFS), MicroChip Technologies (NASDAQ: MCHP), and Intel (NASDAQ: INTC), to rebound.
GlobalFoundries Falls 30% in 2024: The Rebound Has Begun
The price action in GlobalFoundries fell more than 33% at the year’s low but has begun to move higher. The stock shows solid support at historic lows and potential for a rebound that could reclaim the loss and more in 2025. The downturn in price action was caused by a contraction in the business that is expected to end soon. The forecast is for growth to resume in 2025 and leveraged growth on the bottom line. Results from Q3 align with the forecast, contracting but less than expected, and the outperformance was compounded by guidance. The company’s guidance is for revenue to rise sequentially to about $1.825 billion, down only 1% compared to the prior year, driven by existing clients and new design wins.
Among the opportunities for GlobalFoundries and its investors are market share gains in critical end markets like automotive, IoT, mobile, and data centers. The company’s operating footprint does not include China or Taiwan, alleviating the political risk that comes with them. With the United States and European Union leaders focusing on boosting domestic production, it is a natural choice and already benefits from the trend. The company was awarded $1.5 billion as part of the CHIPs Act funding and over $2 billion in total awards to boost local production in New York and Vermont. The money will be used to expand and upgrade existing semiconductor manufacturing facilities and build a new one on existing property.
Microchip Falls 40%: Confirms Long-Term Trend
Microchip Technology fell more than 40% to its low in 2024. Like GlobalFoundries, this semiconductor manufacturing business is suffering a contraction related to end-market normalization and economic headwinds. However, like GlobalFoundries, it is expected to revert to growth soon, and the business rebound is forecasted to be vigorous.
The analysts' consensus reported by MarketBeat expects 17% top-line growth next year and leveraged results on the bottom line. The company’s earnings are expected to grow by 65% on increased operating leverage, and consensus may underestimate the rebound because of the revision trend. 100% of analysts have lowered their estimates so far in calendar Q4 and have set the bar low. With all end markets expected to grow in 2025 and anticipated tailwinds to form, the odds are high for outperformance.
The price action in MCHP stock aligns with an outlook for a rebound. The market is down 40% from its highs but is showing support at a critical uptrend line.
Intel Falls More Than 50% in 2024; Down 65% From Its Highs With Nowhere to Go But Up
Intel has struggled for years with its massive size and lost relevance in an age of rapidly evolving technology. However, as bad as it may seem, the company is still a leader regarding annual revenue and among the largest semiconductor companies by market cap.
Its business is deeply entrenched in PCs, which will be among the last to benefit from AI upgrades, but it also includes data centers and edge computing.
The company has hurdles but is well-positioned to bounce back. The outlook for 2025 is for revenue to grow by more than 5% in 2025 and for profitability to resume. A $7.86 billion CHIPS Act award to boost local production is among the drivers of long-term success. The company intends to use the funds to expand and ramp up domestic production.
