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Leading edge semiconductor production is dependent on the existence and availability of leading edge facilities and equipment. So any manufacturing advancement actually happens first on the equipment side, which thereby facilitates the change on the chip side. Companies may either build out new fabrication facilities for manufacturing or retool existing facilities, both of which lead to equipment purchases.
Another reason semiconductor companies buy equipment is the need to enhance/replace existing equipment because of normal wear and tear.
China’s focus on building its internal capabilities to cater to the constantly rising demand for and therefore, import of semiconductors is a more recent phenomenon and one that should benefit leading equipment makers.
Cyclical Business
Since semiconductor equipment and facilities are very capital intensive, decisions to invest in them don’t take place overnight. The manufacturer has to carefully consider the current and future demand to optimally manage idle capacity and determine the possible payback period. As far as the market is concerned, even one major new facility can lead to demand/supply imbalance, thus impacting prices for all peers. This made the business highly cyclical, with periods of high investment followed by periods of lower investment.
But this cyclicality may now be no more because of factors that can lead to more sustained demand, i.e. semiconductor design innovations, shrinking chip geometries, the growing popularity of cloud computing, the advent of the Internet of Things, self-driving cars, solar power and other technological advancements. Chinese equipment purchases will only add to this.
This Zacks Rank #1 company has seen its shares jump 15.0% over the last three months, well above the 3.8% for the S&P 500.
And this is not without reason. Apart from all the general positives for the industry described above, the company has topped both revenue and earnings estimates in each of the last six quarters, its revenues have almost doubled over the last three years and its earnings before non-recurring items have nearly trebled. For all this, its debt cap ratio remains very reasonable at around 29% with ROA inching upward and net cash per share doubling.
Further, according to the Zacks Style Score System, which seeks to relate stocks with particular investment styles, LRCX is a solid pick for just about anybody by virtue of its VGM score of A (Value score B, Growth score B, Momentum score C).
Shares of this Zacks Rank #2 company have appreciated 12.7% in the last three months.
Applied Material’s surprise history hasn’t been as great as Lam’s but the company beat revenue estimates in three of the last six quarters and earnings estimates in all quarters. Applied’s revenues have grown 65% over the last three years while its earnings before non-recurring items have grown 225% (supported by a slightly lower share count). The company’s debt cap ratio has increased somewhat but remains very manageable at around 28.9%. ROA has nearly doubled and net cash per share is slightly higher.
The Zacks Style score system indicates that the stock will be appreciated by both value and growth investors. It also has a VGM score A meaning that most investors wouldn’t be disappointed with it.
This Zacks Rank #2 company’s shares have appreciated 16.6% over the last three months.
KLA’s revenues beat estimates in five of the last six quarters with earnings beating in every quarter. Its revenues are up 22.2% over the last three years while earnings are up over 85%.
The stock is mainly recommended for growth investors.
Sell These Stocks. Now.
Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500. 3
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Good Time to Buy Semiconductor Equipment Stocks?
Leading edge semiconductor production is dependent on the existence and availability of leading edge facilities and equipment. So any manufacturing advancement actually happens first on the equipment side, which thereby facilitates the change on the chip side. Companies may either build out new fabrication facilities for manufacturing or retool existing facilities, both of which lead to equipment purchases.
Another reason semiconductor companies buy equipment is the need to enhance/replace existing equipment because of normal wear and tear.
China’s focus on building its internal capabilities to cater to the constantly rising demand for and therefore, import of semiconductors is a more recent phenomenon and one that should benefit leading equipment makers.
Cyclical Business
Since semiconductor equipment and facilities are very capital intensive, decisions to invest in them don’t take place overnight. The manufacturer has to carefully consider the current and future demand to optimally manage idle capacity and determine the possible payback period. As far as the market is concerned, even one major new facility can lead to demand/supply imbalance, thus impacting prices for all peers. This made the business highly cyclical, with periods of high investment followed by periods of lower investment.
But this cyclicality may now be no more because of factors that can lead to more sustained demand, i.e. semiconductor design innovations, shrinking chip geometries, the growing popularity of cloud computing, the advent of the Internet of Things, self-driving cars, solar power and other technological advancements. Chinese equipment purchases will only add to this.
So here are a few stocks that can make you money today: (you can also see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here).
Lam Research (LRCX - Free Report)
This Zacks Rank #1 company has seen its shares jump 15.0% over the last three months, well above the 3.8% for the S&P 500.
And this is not without reason. Apart from all the general positives for the industry described above, the company has topped both revenue and earnings estimates in each of the last six quarters, its revenues have almost doubled over the last three years and its earnings before non-recurring items have nearly trebled. For all this, its debt cap ratio remains very reasonable at around 29% with ROA inching upward and net cash per share doubling.
Further, according to the Zacks Style Score System, which seeks to relate stocks with particular investment styles, LRCX is a solid pick for just about anybody by virtue of its VGM score of A (Value score B, Growth score B, Momentum score C).
Applied Materials (AMAT - Free Report)
Shares of this Zacks Rank #2 company have appreciated 12.7% in the last three months.
Applied Material’s surprise history hasn’t been as great as Lam’s but the company beat revenue estimates in three of the last six quarters and earnings estimates in all quarters. Applied’s revenues have grown 65% over the last three years while its earnings before non-recurring items have grown 225% (supported by a slightly lower share count). The company’s debt cap ratio has increased somewhat but remains very manageable at around 28.9%. ROA has nearly doubled and net cash per share is slightly higher.
The Zacks Style score system indicates that the stock will be appreciated by both value and growth investors. It also has a VGM score A meaning that most investors wouldn’t be disappointed with it.
KLA-Tencor Corp (KLAC - Free Report)
This Zacks Rank #2 company’s shares have appreciated 16.6% over the last three months.
KLA’s revenues beat estimates in five of the last six quarters with earnings beating in every quarter. Its revenues are up 22.2% over the last three years while earnings are up over 85%.
The stock is mainly recommended for growth investors.
Sell These Stocks. Now.
Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500. 3
See today's Zacks "Strong Sells" absolutely free >>.