There are times when a company becomes the best-known representative for its sector, for better or worse.

It happened with Nvidia Corp. (NASDAQ: NVDA) shares more than a year ago as any mention of the semiconductor sector was prefaced or followed with talk of Nvidia. For those of you doing this long enough, Intel used to be the face of the semis.

Anyhow, I bring this up because everyone’s focus on Nvidia’s poor performance has cast a cloud over the rest of the semiconductor sector, a group that is wildly outperforming the rest of the market.

Here’s the thing – Nvidia is trading 10% higher for the year, but you would think that it was down 25% the way that analysts and the media talk about the stock.

Truth is that the stock is potentially in one of the most powerful stages of a rally: the “disbelief” stage.

This sweet spot in a stock, sector, or market rally happens when investors are still shell-shocked from the last round of selling and are too nervous to jump on the bull that’s already started to run.

Let’s take a look…

A Sector Ripe for the Picking
The semiconductor sector is one of those sectors that’s in a powerful “disbelief rally.” Year to date, the XSD (the ETF that tracks the semiconductor sector) is 16% higher, with the average stocks within the sector averaging the same 16%.

Almost half of the semiconductor companies in the XSD are returning over 20%!

I tightened my look on the sector by running the semiconductor companies through my Best in Breed (BiB) scoring system. The results were impressive to say the least.

Twenty-five of the 37 companies in the sector are currently ranked an 8-10, which is a buy from this model.

What this means for you is that the semiconductor sector is ripe for the picking with bullish opportunities. Among the top names from my scan this morning are ON Semiconductor Corp. (NASDAQ: ON) and CREE Inc. (NASDAQ: CREE).

Now, I gave you CREE a week or so ago, which is a position that has netted more than 30% for those of you that followed the recommendation. How about ON Semiconductor?

ON Semiconductor took a shot through its 200-day moving average last week after a positive earnings report. Its shares are one of the first in the semiconductor sector that are now trading in a bull market trend again, which makes it a relative strength leader.

Short selling has been heavy on the stock as traders have been betting against the semiconductor stocks as a group.

Right now, there is a higher possibility that the shorts are going to have to cover their positions, which means a short squeeze rally is coming.

With positive earnings, a lot of disbelief, and technical strength fueling a rally… ON Semiconductor is a stock worth looking at as a buy with a target of $25 over the short term.

— Chris Johnson

Source: Money Morning