Motley Fool: These chips are down

Thanks in large part to the pandemic, the world is experiencing a shortage of semiconductor chips, which are used in everything from smartphones to cars. Demand for chips is high, but shares of Singapore-based Kulicke & Soffa Industries (Nasdaq: KLIC) are down – recently by nearly 22% from their 52-week high – presenting an opportunity for investors.

Kulicke & Soffa is a semiconductor equipment maker offering technology with which to make chips. In its last quarter, revenue surged 76% year over year, while earnings per share topped 174%. Investors can hope for continued growth (though such rapid growth rates may not be the norm), as the company is broadening its portfolio.

On a recent conference call with analysts, management noted recent design wins in silicon photonics applications for optical transceivers used in high-speed networking, and said emerging growth opportunities in automotive and advanced displays are trending ahead of plan. Meanwhile, Kulicke’s backlog reached nearly $700 million last quarter – 2.5 times higher than a year earlier.

With a recent price-to-earnings (P/E) ratio in the single digits, well below its five-year average of 37, Kulicke & Soffa’s stock is appealingly priced. Its dividend, which was increased by 21% last year, recently yielded 1.1%. And management is also rewarding shareholders by buying back (and essentially retiring) $800 million worth of shares. Long-term investors should take a closer look.

Ask the Fool

Q: I’ve heard it’s good to invest regularly in stocks. But some stocks I’m thinking of buying are down by 35% to 65% now. Do I buy into those, or stay away from them? Is it a trap? – S.P., Riverside, California

A: Assuming you’ve researched the companies and believe that they have very promising futures, what you’re looking at is not a trap – it’s a glorious buying opportunity!

The stock market has fallen sharply in recent months (as it does every few years or so), taking many solid businesses’ stocks down with it. Market volatility is to be expected if you’re going to invest in stocks, and it can present great entry prices to stocks you’d like to own.

The key is being a long-term investor. Not every stock will bounce back from a fall, but if you buy intending to hold for at least five years, if not 10 or 20, and you’ve bought a healthy and growing company, then it’s likely to recover from its drop (perhaps in a few months and possibly in a few years) and go on to hit new highs.

Q: Which mutual funds offer the most income to shareholders? – C.D., Hattiesburg, Mississippi

A: Focus on funds with the word “income” in their names. They’re likely to invest primarily in stocks that pay dividends and/or bonds that pay interest. Note that other kinds of funds can offer income, too, if they hold certain stocks or bonds. We recommend stock index funds for many investors, and they generate income, too.

To see high-quality, low-fee mutual funds we recommend, check out the model portfolios in our “Rule Your Retirement” service at Fool.com/services.

My dumbest investment

My dumbest investment was dollar-cost-averaging into Enron while it dropped like a rock some 20 years ago. Made me very wary of risks in single stocks. I favor mutual funds and exchange-traded funds (ETFs) now. – Q., online

The Fool responds: Enron is a cautionary tale for all investors. It was an energy company allegedly making big profits through derivative trading, among other things, but it turned out there was a lot of fraud going on. Several of its executives went to prison, and the company, with tens of thousands of dollars of assets, became the biggest bankruptcy in history in late 2001.

Those who had bet big on Enron got badly burned – and learned the danger of having too many eggs in one basket. Many employees with 401(k) accounts full of company stock lost their jobs and much of their retirement portfolios, too. In retrospect, it became clear that the company’s accounting was so complicated that few could understand it – and yet many invested anyway. (It’s always best to stick to companies you can really understand.)

It can be tempting to buy more of a falling stock, but remember that many stocks can be falling for good reasons. Do extra research and be extra sure before committing your hard-earned dollars.

Your newfound respect for funds makes sense – they spread your money across a bunch of holdings, reducing risk.