The semiconductor capital equipment segment had a rough go of it in the third quarter, and the rest of the year isn’t shaping up all that well either. While it looks like the third-quarter earnings data should alleviate concerns over wafer fab equipment for next year, the market seems to be pricing in a flat to down year in 2016.

In a new Deutsche Bank research report, while Buy ratings are kept on three top stock picks, price targets are slashed on all the sector leaders. The report acknowledges that the firm is trimming estimates broadly amid macro uncertainties, but Deutsche Bank does find the stocks attractively valued, even considering the risks to current Wall Street estimates.

Here are the three stocks that remain rated Buy at Deutsche Bank.

Applied Materials

This semiconductor capital equipment leader has lagged the overall tech market over the past year. Applied Materials Inc. (NASDAQ: AMAT) actually is now trading below all the moving averages, and for patient investors may be a high-quality pick now. The company 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 company reported lousy earnings in August, and the stock hit a two-year low on the huge late month sell-off. Revenue missed Wall Street’s forecast, and the company offered lackluster fourth-quarter guidance. Despite the rough patch, many on Wall Street think that companies like Applied Materials will benefit from the new Intel and Micron Technology 3D XPoint technology, which is an entirely new class of nonvolatile memory that can help turn immense amounts of data into valuable information in real time.

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Applied Materials investors are paid a 2.56% dividend. The Deutsche Bank price target for the stock is cut from $23 to $20. The Thomson/First Call consensus price target is $21.39. Shares closed Friday at $15.65.
Lam Research

This remains one of the top chip equipment stock picks across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. It 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.

Despite so-so foundry and logic spending, many on Wall Street think that Lam will also continue to benefit from technology transitions such as FinFET, 3D NAND, multi patterning, and advanced packaging in 2015 and beyond. Many analysts believe it is the “cleanest” semi cap story benefiting from cyclical tailwind, SAM expansion and share gains.

Lam Research investors are paid a 1.54% dividend. The Deutsche Bank price target is cut from $100 to $85. The consensus target is higher at $91.81. Shares closed on Friday at $66.47, down almost 20% since July.

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Teradyne

This is another favorite at Deutsche Bank since last year. Teradyne Inc. (NYSE: TER) is a leading supplier of automation solutions for test and industrial applications. Teradyne Automatic Test Equipment is used to test semiconductors, wireless products, data storage and complex electronic systems, which serve consumer, communications, industrial and government customers.

The company’s Industrial Automation solutions include Collaborative Robots used by global manufacturing and light industrial customers to improve quality and increase manufacturing efficiency. Last year Teradyne had revenue of $1.65 billion and currently employs approximately 4,000 people worldwide.

Teradyne’s Avionics Interface Technologies division recently introduced its new Shared Memory Network interface products, an optical, high-speed (2.125 Gbps), ring-based network that uses a replicated memory concept. SMN was developed for applications requiring real-time synchronization and control, such as hardware-in-the-loop simulations, test and measurement, industrial automation and automotive systems simulations.

Teradyne investors are paid a 1.28% dividend. The Deutsche Bank price target drops from $24 to $22. The consensus price objective is $22.57. The stock closed on Friday at $18.68.

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Trading at just above prior chip equipment trough values, these top stocks offer solid value for patient aggressive growth accounts. While the rest of this year may remain static, innovations and new products scheduled for 2016 could be strong catalysts for the sector.

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