Technology

Merrill Lynch's 4 Top Chip Equipment Stocks to Buy Before Earnings

There has been a slow but sure pick-up in the chip segment, and the SOX index after recently hitting a one-year low, has started to rebound. With gradual demand increases in PCs, and a huge bump from smartphones, the top chip companies are expected to report solid third-quarter numbers. That is something that bodes very well for the top chip equipment companies. In a chip equipment earnings preview report from Merrill Lynch, the analysts maintain that while fourth-quarter shipments may be at the low end of their 10% to 15% sequential growth forecast, with some of that revenue being pushed into next year, they are very positive overall.

Here are four top chip equipment stocks to buy from Merrill Lynch.

KLA-Tencor Corp. (NASDAQ: KLAC) is a top chip equipment name to buy at Merrill Lynch. The company is engaged in the design, manufacture and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. With a portfolio of industry standard products and a team of world-class engineers and scientists, the company has created superior solutions for its customers for more than 35 years.

KLA-Tencor investors are paid a 2.6% dividend. The Merrill Lynch price target is $86 and the Thomson/First Call consensus is placed at $75.56. Shares closed trading on Wednesday at $75.84.

ALSO READ: 5 Top Chip Stocks That Could Surge in the Fourth Quarter

Lam Research Corp. (NASDAQ: LRCX) is another of the top chip equipment stocks to buy now at Merrill Lynch, and a company the firm really likes in front of the quarterly earnings report. 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. The Merrill Lynch analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND and DRAM evolution.

Investors in Lam Research are paid a 1% dividend. The Merrill Lynch price target is $80. The consensus target is slightly lower at $78.80. The stock closed Wednesday at $74.41 a share.

MKS Instruments Inc. (NASDAQ: MKSI) is a stock that makes the Merrill Lynch list of top companies to buy, and it may be less familiar to investors. MKS is a global provider of instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. It is actually a vendor to the other top manufacturers of capital equipment for semiconductor devices, and for other thin-film applications including flat panel displays, solar cells, light emitting diodes, data storage media and other advanced coatings.

Investors are paid a 2% dividend. The Merrill Lynch price target is $36 and the consensus is set at $37.29. The stock closed on Wednesday at $33.61.

Ultratech Inc. (NASDAQ: UTEK) is another company that may be less well known, but it has been an industry powerhouse for years. Ultratech is a leading supplier of lithography, laser-processing and inspection systems used to manufacture semiconductor devices and high-brightness LEDs. It is also the market leader and pioneer of laser spike anneal technology for the production of advanced semiconductor devices. In addition, the company offers solutions leveraging its proprietary coherent gradient sensing technology to the semiconductor wafer inspection market.

The Merrill Lynch price target is a whopping $31, while the consensus number is lower at $28. The shares closed trading at $22.24. Trading to the target price would be a 40% gain for shareholders.

ALSO READ: 9 High-Yield Dividends for Risk Takers

The explosion in ever-advancing chips for smartphones, tablets and PCs, plus the huge demand for memory chips, keeps the industry growth strong. These stocks are a good choice for a risk-tolerant aggressive growth portfolio with a long-term bias.

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