Technology
Semiconductor Capital Equipment Off to a Huge 2018: 5 to Buy Now
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Just when investors were maybe becoming a touch nervous over the dizzying heights the semiconductor capital equipment industry has soared to over the past couple of years, a major player came in this week and absolutely shredded expectations. Comments provided by Lam Research Inc. (NASDAQ: LRCX) paved a smooth runway for the segment when it presented very positive commentary on wafer fab equipment spending for 2018. While the stock was surprisingly hammered, most feel that industry is poised for big growth.
In a new research report from Stifel, some of the comments from Lam Research even exceeded their own bullish perspective, and the report noted this:
While we have been bullish on WFE trends led by the memory sector and believe upside exists, Lam’s comments confirmed this view and if anything, provided more support that the upside is already being factored in by the equipment companies. From a big picture perspective, we believe Lam’s comments are positive for the group and can provide a more sustainable catalyst as we believe revenues and earnings can continue to grow over the next quarter or two.
The Stifel team is positive on numerous semiconductor capital equipment companies, and the following five may the best upside potential for investors.
Applied Materials
This semiconductor capital equipment leader has one of the broadest ranges of exposure to 3D NAND and Foundry display, and it is also on the Stifel Select List. Applied Materials Inc. (NASDAQ: AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.
The analysts are very positive on the stock, and see Applied Materials benefiting not only the semiconductor side of the business but also from larger, higher resolution and flexible screens on the display side of the business. It may still be one of the best technology values available for investors today.
Many feel there are 5 top reasons to own the shares: semiconductor capital equipment strength, OLED, investments from China, valuation and $4 in earnings per share in two years.
Applied Materials investors are paid a 1.01% dividend. The Stifel price target for the stock is $70. The Wall Street consensus price target is $68.50, and the stock traded early Friday at $55.60 a share.
FormFactor
This small-cap company could offer large returns for aggressive investors. FormFactor Inc. (NASDAQ: FORM) helps semiconductor manufacturers test the integrated circuits (ICs) that power consumer mobile devices, as well as computing, automotive and other applications.
The company is one of the world’s leading providers of essential wafer test technologies and expertise, with an extensive portfolio of high-performance probe cards for DRAM, flash and system on chip devices. Customers use FormFactor’s products and services to lower overall production costs, improve their yields and enable complex next-generation ICs.
Last year the semiconductor probe card manufacturer made a bold bet by shelling out more than $350 million to acquire Cascade Microtech, one of its primary competitors. That move nearly doubled the size of its business and promised to make the company stronger than ever.
Stifel has a $21 price target for the stock, and the posted consensus target is $20.18. The shares were last seen trading at $15.05.
24/7 Wall St.KLA-Tencor
This is another strong large cap play for investors that produced huge earnings last quarter. KLA-Tencor Corp. (NASDAQ: KLAC) designs, manufactures and markets process control and yield management solutions worldwide.
It offers chip manufacturing products, such as front-end defect inspection tools, defect review systems, advanced packaging process control systems, metrology solutions, in-situ process monitoring products and lithography software; wafer manufacturing products comprising surface and defect inspection, wafer geometry and nanotopography metrology and data management; and reticle manufacturing products, such as defect inspection and pattern placement metrology products.
The company also provides light emitting diode (LED), power device and compound semiconductor manufacturing products consisting of patterned wafer inspection, defect inspection, surface metrology and data management products; thin-film head metrology and inspection, virtual lithography, in-situ process monitoring, transparent and metal substrate inspection and data management products for data storage media/head manufacturing; and stylus and optical profiling and optical inspection products for microelectromechanical systems manufacturing, as well as products for general purpose/lab applications.
The company reported fiscal second-quarter earnings that surged 30% from the year-ago quarter and 10% sequentially, and also handily beat the consensus estimate. Revenues increased 11.3% from the year-ago quarter, also comfortably surpassing the consensus estimate.
Shareholders of KLA-Tencor are paid a solid 2.5% dividend. The $121 Stifel price objective is higher than the consensus target of $114.79. The shares traded at $112.80 Friday morning.
Lam Research
This remains one of the top chip equipment picks across Wall Street. Lam Research 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.
Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.
Shareholders are paid a 1.07% dividend. Stifel raised its price target to a whopping $260 after it posted huge numbers. The consensus price objective is $231.65. After a roller-coaster ride on Thursday, shares were up around 2% to $203.40 on Friday.
MKS Instruments
This stock flies somewhat under the radar but offers solid upside. MKS Instruments Inc. (NASDAQ: MKSI) provides instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of manufacturing processes in the United States and internationally.
MKS offers pressure measurement and control products used for various pressure ranges and accuracies; materials delivery products, including gas flow measurement products and vacuum valves; automation and control products, such as automation platforms, programmable automation controllers, temperature controllers and software solutions for use in automation, I/O and distributed programmable I/O, gateways and connectivity products; and vacuum products comprising vacuum containment components, effluent management subsystems and custom stainless steel chambers, vessels and pharmaceutical process equipment hardware and housings.
Stifel analysts have felt for some time that the increase in the Applied Material’s display equipment business will have positive implications for MKS as it supplies many key subsystems for Applied’s display tools. In addition, MKS acquired Newport last year and added the company’s iconic Spectra-Physics laser brand to its product lineup.
MKS shareholders receive a 0.75% dividend. The Stifel price target is $116. The consensus target is $117.83. Shares traded at $102.10.
While all these stocks have rallied from levels hit in the fourth quarter, they are also poised for what could be another solid year of growth in memory and NAND. It may make sense to start buying some stock now and see how the results for the rest of the companies come in.
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