For the past couple of years, the semiconductors have been red hot, and in lock-step so have the semiconductor capital equipment stocks, and with good reason. As demand for semiconductor performance, capacity and ability have grown, so has the need for the machines and test gear that make them. Throw in the soaring demand for memory, and you have had a perfect storm for both chips and gear.
With some of the biggest names in the industry reporting solid numbers, and reiterating growth going forward, the semiconductor capital equipment stocks are getting hammered, and the analysts at Stifel are pounding the table for investors to buy the sell-off. They noted this in their report when discussing memory:
On the subject of memory spending, there is also the bear sentiment that the industry is heading to an overcapacity or oversupply situation. We maintain our view that the industry is NOT heading to this scenario in either Dynamic random-access memory (DRAM) or NAND flash memory which is a type of non volatile technology that does not require power to retain data. On the DRAM front, we believe DRAM remains healthy, while it continues to broaden its application usage. We also believe the capital intensity costs of new DRAM capacity has significantly increased where the same dollar amounts being spent today will drive only 20-25% annual bit growth, whereas 7-10 years ago, that same dollar spent would drive 40-45% bit growth.
These four top stock remain Buy rated at Stifel and all look attractive for aggressive growth accounts looking to add shares of these companies at a discount.
This semiconductor capital equipment leader has one of the broadest ranges 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.
The analysts are very positive on the stock, and see Applied Materials benefiting not only on the semiconductor side of the business but also from larger, higher resolution and flexible screens on the display side of the business.
Applied Materials remains the top pick at Stifel, and the firm believes the company will continue to outperform in the wafer fab equipment arena.
Applied Materials investors are paid a 1.45% dividend. The Stifel price target for the stock is $71, and the Wall Street consensus target is $70.24. The stock closed Wednesday at $54.73 a share, down over 5% on the day.
This small cap play has seen some very solid insider buying over the past year. Entegris Inc. (NASDAQ: ENTG) is a global developer, manufacturer and supplier of micro contamination control products, specialty chemicals and materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries.
The company operates in three business segments: Specialty Chemicals and Engineered Materials, Advanced Materials Handling and Microcontamination Control.
The analysts remain very positive on the stock and see it as a more defensive play for investors looking to buy the sector but wary of the equipment companies.
Stifel has a $42 price target, while the posted consensus target was last seen at $41.06. The shares closed Wednesday at $37.15, down less than 2% for the day.