UBS Says Top Semiconductor Equipment Stocks Will Have Big Q4 Sales

By Lee Jackson Updated Jun 27, 3:56PM EDT · Published Oct 7, 8:50AM EDT

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Semiconductor sales have moved in a slow, sideways range over the past year. The key for the top companies like Intel Corp. (NASDAQ: INTC) and Advanced Micro Devices Inc. (NYSE: AMD) to ramp up and really start having success is new product innovation. The introduction of two new Apple Inc. (NASDAQ: AAPL) iPhones is an example. Another good example will be the introduction of new gaming systems like the Xbox One from Microsoft Corp. (NASDAQ; MSFT), scheduled to launch in November in time for the holiday selling season.

The introduction of products typically comes way after orders have been submitted to the semiconductor companies, which have to make sure their fabrication facilities are up and running with the most up-to-date capabilities. That is starting to show up in sales at the top semiconductor equipment companies. In a research report out today, UBS makes the case that after a slow start to the year, third-quarter earnings have rebounded sharply and in the fourth quarter should be higher as well. The analysts estimate total semiconductor wafer shipments will be up 4% next year and 5% in 2015. The UBS analysis shows that historically, semiconductor unit growth has led semiconductor capital equipment, especially back-end semiconductor test orders, by a quarter. That should bode well for the top semiconductor capital equipment stocks to buy.

Applied Materials Inc. (NASDAQ: AMAT) recently agreed to a huge $9.39 billion all-stock purchase of Tokyo Electron, the third-biggest manufacturer, pushing their combined market share to at least 25%. Investors may have a good opportunity to buy the stock as arbitrage players push down Applied Materials prior to the deal closing. This may take a while as the antitrust review could be lengthy. The Thomson/First Call price target is $18.75. Investors are paid a 2.3% dividend. Applied Materials closed Friday at $7.57.

ASML Holding N.V. (NASDAQ: ASML) engages in designing, manufacturing, marketing and servicing semiconductor processing equipment used in the fabrication of integrated circuits or chips worldwide. It provides PAS 5500 family products that comprise wafer steppers, as well as step and scan systems suitable for the i-line, krypton fluoride and argon fluoride processing of wafers. UBS notes in its report the company’s orders were up 15% in the third quarter to $879 million. The consensus price target for this top industry name is $97.50. The stock closed Friday above that at $100.96.

KLA-Tencor Corp. (NASDAQ: KLAC) engages in design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries worldwide. It provides a portfolio of defect inspection and metrology products, as well as related service, software and other offerings. The consensus price target for the stock is posted at $65. Investors are paid a very solid 3% dividend. KLA closed Friday at $60.80.

Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device. The consensus price objective for this top stock to buy is $58. The stock closed Friday at $52.

Like the new Xbox One, Sony Corp. (NYSE: SNE) will release its highly anticipated PlayStation 4 in time for the holiday shopping season. This onslaught of new gaming devices and smartphones has helped put a little wind behind the semiconductor companies, which in turn is a huge boost to these equipment stocks. With orders expected to rise over the next two years, now may be an ideal time to start investing in these top names.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.