{"id":68977,"date":"2023-10-05T08:10:29","date_gmt":"2023-10-05T12:10:29","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/xsd-a-chip-etf-with-strong-potential-upside\/"},"modified":"2023-10-05T08:10:36","modified_gmt":"2023-10-05T12:10:36","slug":"xsd-a-chip-etf-with-strong-potential-upside","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=68977","title":{"rendered":"XSD: A Chip ETF With Strong Potential Upside"},"content":{"rendered":"
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<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

Summary<\/h2>\n

I find the SPDR S&P Semiconductor ETF (NYSEARCA:XSD<\/span>) ETF compelling due to its broader and more equal weight focus of the semiconductor sector. Unlike iShares Semiconductor ETF (SOXX), which I covered recently, the XSD has greater upside potential on lower relative valuation. While its holdings do not escape the 2023 downturn, many have strong consensus EPS growth for YE24 (45%) and YE25 (53%) that combine with a PE of 24x and consensus price target upside of 35%.<\/span><\/p>\n

Key to the XSD fund is that it tracks the S&P Semiconductor Select Industry from the S&P Total Market Index i.e., it’s far broader than the S&P 500 (SPX). The average weight is 2.6% with mega cap Nvidia (NVDA) at only 2.8%. This ETF includes and gives a larger ponderation to small cap stocks.<\/p>\n

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\"Image<\/span>
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SPDR Index for XSD (Image from SPDR)<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Performance has been very good. Since inception it is up 580% and has beaten the NASDAQ (NDX) handsomely. In addition, this ETF has kept pace with bigger caped focused funds as well.<\/p>\n

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\"chart<\/span>
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XSD Performance vs Select Peers (Created by author with data from Capital IQ)<\/p>\n<\/figcaption><\/figure>\n

\"chart<\/span>
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XSD Performance Since Inception (Created by author with data from Capital IQ)<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Looking Under the Hood<\/h2>\n

To better gauge the upside potential and the fundamentals of the ETF I utilized individual consensus estimates for 40 stock or 99% of the portfolio. I calculate weighted growth, PE and relative valuation (PEG). This exercise also serves to identify outliers that maybe of interest as individual positions.<\/p>\n

As can be seen in the table below, XSD has a consensus weighted upside potential of 35% and an average of 37% to YE24. There are 10 stocks with circa 50%+ upside according to analysts. indie Semi (INDI) has 144% upside potential and is focused on AI\/Autonomous sensors.<\/p>\n

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\"Table<\/span>
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XSD Consensus Portfolio Upside (Created by author with data from Capital IQ)<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Growth Outlook<\/h2>\n

I calculated EPS growth for YE23 to YE25 using consensus estimates. Many companies are expected to post declining or negative earnings in YE23, and the ETF portfolio points to a 25% EPS reduction. For YE24 and YE25 analyst expect a sharp increase, up 45% and 53%.<\/p>\n

However, this may be more an optical illusion than fundamental growth for many companies as they regain what was lost in YE23. Hence, I compared YE25 EPS in absolute terms to YE22 EPS. If a company has ratio of 1 or less this means it has not yet reached YE22 earnings levels by YE25, which is not a good sign and may not warrant a high valuation. About 40% of the portfolio falls into this category. “Real” high growth stocks seem to be First Solar (FSLR), Credo Tech (CRDO) and Impinj (PI) as well as NVIDIA.<\/p>\n

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\"Table<\/picture>
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XSD Consensus EPS Growth (Created by author with data from Capital IQ)<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Valuation<\/h2>\n

Using consensus estimates I calculated a relative valuation using the PEG method or PE to EPS growth. The rule of thumb is that a PEG of 1 or less indicates a cheap valuation. The problem one faces using this method is how many years of growth to use to fairly value the stock. A recuperation year or moving from loses to lower loses may greatly distort the outcome. One needs to scrub or adjust the data.<\/p>\n

The ETF portfolio has a PEG of .9 and .7 for YE24 and YE25 respectively. Quite solid relative valuations adjusted for volatile EPS growth. I also calculated the implied PE target from consensus price targets. Most analyst use 12month or YE24 price targets, but others, for stocks with longer earnings ramp up may use a YE25 EPS to derive a target price. While a P\/Revenue is still used for stock with loses. As can be seen the “fair” PE for the ETF is 29x on YE24 EPS. In my view reasonable relative to growth.<\/p>\n

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\"Table<\/picture>
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XSD Consensus Relative Valuation (Created by author with data from Capital IQ)<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Conclusion<\/strong><\/h2>\n

I rate the XSD a buy as its broader and more equal exposure to the semiconductor sector, that includes some small caps, seems to provide high upside potential with a relatively inexpensive valuation, according to consensus estimates.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Summary I find the SPDR S&P Semiconductor ETF (NYSEARCA:XSD) ETF compelling due to its broader and more equal weight focus of the semiconductor sector. Unlike iShares Semiconductor ETF (SOXX), which I covered recently, the XSD has greater upside potential on lower relative valuation. While its holdings do not escape the 2023 downturn, many have strong […]<\/p>\n","protected":false},"author":1,"featured_media":68978,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-68977","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nXSD: A Chip ETF With Strong Potential Upside | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Summary I find the SPDR S&P Semiconductor ETF (NYSEARCA:XSD) ETF compelling due to its broader and more equal weight focus of the semiconductor\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=68977\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta 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