Stifel Pounds the Table to Buy Semiconductor Equipment Sell-Off Now

Lee Jackson
Lam Research

This 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 market, driven by a strong focus on technology inflection spending over the next few years.

The Stifel analysts like the company’s exposure to memory and feel the continued strength in the industry is a positive for the coming year. They also think fears of capital intensity are overblown and the company will outpace industry WFE trends.

The company posted a very solid earnings beat and raised forward guidance, but the stock was hit hard as second-half guidance implied deceleration, albeit back in line with expected growth levels. The solid earnings and guidance raise was driven by sales and margins. In addition, Lam Research posted the first $1 billion quarter of free-cash-flow services, which was not included in shipments.

Shareholders are paid a 1.01% dividend. The $260 Stifel price target is in line with the posted consensus price objective of $260.45. The shares ended Wednesday trading at $203.77 after falling more than 4% for the day.

MKS Instruments

This stock flies somewhat under the radar but offers solid upside. MKS Instruments Inc. (NASDAQ: MKSI) provides instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of manufacturing processes in the United States and internationally.

MKS offers pressure measurement and control products used for various pressure ranges and accuracies; materials delivery products, including gas flow measurement products and vacuum valves; automation and control products, such as automation platforms, programmable automation controllers, temperature controllers and software solutions for use in automation, I/O and distributed programmable I/O, gateways and connectivity products; and vacuum products comprising vacuum containment components, effluent management subsystems and custom stainless steel chambers, vessels and pharmaceutical process equipment hardware and housings.

Stifel analysts have felt for some time that the increase in the Applied Material’s display equipment business will have positive implications for MKS as it supplies many key subsystems for Applied’s display tools. In addition, MKS acquired Newport last year and added the company’s iconic Spectra-Physics laser brand to its product lineup.

MKS shareholders receive a 0.65% dividend. The Stifel price target is $133. The consensus target is $132.20, and shares were last seen at $116.60, down almost 5% on the day.

Four outstanding stocks to buy, all of which are way down from 52-week highs. The market volatility is a legitimate concern, so it makes sense to scale-buy shares rather than go all-in. With that in mind, it is very possible that by this time next year, some serious money can be made.