For those involved in the semiconductor space in 2017, it has been a very good year. While 2018 may not be quite as impressive, there is every reason to be optimistic. The most positive aspect is that spending looks to be strong for the fourth quarter and could very well spill over into next year, and while valuations have jumped, some recent declines in stock prices are making entry levels more appetizing.
In a new research report, Stifel remains very positive on the semiconductor capital equipment stocks, and with good reason. The demand for dynamic random access memory (DRAM) is driving spending, which could in turn drive upside to the final 2017 results. The report explained why the firm is bullish:
With the quarter (and year) coming to an end, our most recent channel checks suggest a strong conclusion in spending, which could drive upside to the equipment group when all is said and done. We believe the biggest incremental upside driver is spending on the memory end, notably in DRAM. We also believe 3D NAND orders have once again picked up, setting up shipments and tool deliveries into the first half of 2018. From a fundamental and stocks perspective, we continue to be bullish on the outlook for 2018 and believe the recent market pullback represents a buying opportunity for investors.
These five top companies are rated Buy at Stifel, and all are outstanding additions to aggressive growth accounts.
Some on Wall Street feel this semiconductor capital equipment leader has the broadest range of exposure to 3D NAND and foundry display. 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.
Many analysts expect that the industry NAND supply will be up a high 30% in calendar 2017 and approaching near 50% in calendar 2018 as well, with underlying demand drivers remaining solid. Continued supply growth and technology transitions should bode well for semi-cap companies.
Applied Materials shareholders are paid a small 0.77% dividend. The Stifel price target for the shares is $66, and the Wall Street consensus target is $67.40. The stock closed Friday at $52.06 a share.
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, and the consensus target is $20.18. The shares ended last Friday at $16.40.