Semiconductors are the silicon backbone of the digital revolution. Still, they’re subject to swings in the broader economy because customers often stockpile chips ahead of demand, and investors seem to believe that inventory levels are correcting - over the past six months, the industry has shed 24.2%. This drop was noticeably worse than the S&P 500’s 5.7% fall.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. With that said, here is one resilient semiconductor stock at the top of our wish list and two we’re steering clear of.

Two Semiconductor Stocks to Sell:

Lattice Semiconductor (LSCC)

Market Cap: $6.76 billion

A global leader in its category, Lattice Semiconductor (NASDAQ:LSCC) is a semiconductor designer specializing in customer-programmable chips that enhance CPU performance for intensive tasks such as machine learning.

Why Are We Wary of LSCC?

1. Sales tumbled by 12.2% annually over the last two years, showing market trends are working against its favor during this cycle

2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.9%

3. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 6.1 percentage points

Lattice Semiconductor’s stock price of $48.78 implies a valuation ratio of 45.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than LSCC .

Teradyne (TER)

Market Cap: $12.43 billion

Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ:TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.

Why Is TER Not Exciting?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.5% annually over the last two years

2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 8.7 percentage points

3. Free cash flow margin shrank by 5.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Teradyne is trading at $77.22 per share, or 18.4x forward price-to-earnings. Read our free research report to see why you should think twice about including TER in your portfolio, it’s free .

One Semiconductor Stock to Buy:

Broadcom (AVGO)

Market Cap: $884.7 billion

Originally the semiconductor division of Hewlett Packard, Broadcom (NASDAQ:AVGO) is a semiconductor conglomerate spanning wireless communications, networking, and data storage as well as infrastructure software focused on mainframes and cybersecurity.