Investing

Merrill Lynch Adds Top Financial Services Stock to US 1 Portfolio

Lam Research

This company remains one of the top chip equipment 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. 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 (WFE) market, driven by a strong focus on technology inflection spending over the next few years.

Despite so-so foundry and logic spending in the past year, many on Wall Street think that Lam Research also will 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.

The company reported solid third-quarter results, and Merrill Lynch was very impressed with the solid guidance for the fourth quarter. The analyst also points to the company’s analysts day in November, when it could announce a $1 billion stock buyback program.

Shareholders receive a 1.21% dividend. The Merrill Lynch price objective is $115. The consensus target is $111.28. The shares closed Tuesday at $98.07.

Qualcomm

This top technology stock has done very well this year and the company recently finished a bid for NXP Semiconductors. Qualcomm Inc. (NASDAQ: QCOM) is a world leader in 3G, 4G and next-generation wireless technologies. The company includes the licensing business, QTL, and the vast majority of its patent portfolio. Its subsidiary Qualcomm Technologies operates substantially all of Qualcomm’s engineering, research and development functions, as well as substantially all of its products and services businesses, including its semiconductor business, QCT.

The growth of 3G mobile technologies in emerging markets, like China and India, has had a positive impact on Qualcomm and could be a difference maker going forward. Qualcomm is and has been for years a market leader in the development of 3G CDMA (Code Division Multiple Access) technologies. The company recently developed an LTE chipset that supports SCDMA (Synchronous Code Division Multiple Access) technology. China’s mobile network runs on this, and it could provide the company with a huge leg up in years to come.

Qualcomm reported third-quarter revenue and earnings that beat Wall Street estimates. Fourth-quarter guidance was also better than expected. In China, new semiconductor products are gaining share and management is making better progress with royalty collections.

Investors receive a 3.22% dividend. Merrill Lynch has a $68 price objective, while the consensus target is $65.02. Shares closed Tuesday at $67.71.

While the US 1 list has slightly underperformed the S&P 500 year to date, it has outperformed it since inception by a large margin. The stocks are among the highest conviction picks at Merrill Lynch and make good additions to any growth portfolio.

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