Technology

4 Semiconductor Capital Equipment Stocks On Sale as SemiCon West Underway

Lee Jackson

Published: July 12, 2018 8:15 am

Last Updated: January 11, 2020 9:09 pm

Summertime always means trade shows and conventions for Wall Street companies, and this summer is no different. This week investors and executives from the semiconductor capital equipment industry have arrived in San Francisco for the annual SemiCon West extravaganza. As we have noted before, some big news and announcements often emerge from these industry gatherings.

In a new research report, Stifel analysts review the SemiCon West activity and note some of the companies with which they will meet. The firm remains positive overall on the industry and noted this in the report:

While there has been a lot of “noise” recently and concerns over near-term system shipments, we believe the overall tone will still be relatively positive regarding wafer fab equipment (WFE) spending for 2019 and some of the key drivers for this continued elevated spending trend (we expect a big focus and discussion on artificial intelligence at the event). We also would not be surprised at discussions and thoughts on the potential of how an escalating trade war between the U.S. and China could impact the semiconductor capital equipment industry.

For technology investors, it may be best to stay with the biggest players in the industry. Stifel covers them, and all four are rated Buy and offer some of the best entry points in months.

Applied Materials

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 1.77% dividend. The Stifel price target for the shares is $75, and the Wall Street consensus target is $66.41. The stock closed Wednesday at $45.20 a share.

KLA-Tencor

This is another strong, large-cap play for investors. KLA-Tencor Corp. (NASDAQ: KLAC) designs, manufactures and markets process control and yield management solutions worldwide.

It offers chip manufacturing products, such as front-end defect inspection tools, defect review systems, advanced packaging process control systems, metrology solutions, in-situ process monitoring products and lithography software; wafer manufacturing products comprising surface and defect inspection, wafer geometry and nanotopography metrology and data management; and reticle manufacturing products, such as defect inspection and pattern placement metrology products.

The company also provides light emitting diode (LED), power device and compound semiconductor manufacturing products consisting of patterned wafer inspection, defect inspection, surface metrology and data management products; thin-film head metrology and inspection, virtual lithography, in-situ process monitoring, transparent and metal substrate inspection and data management products for data storage media/head manufacturing; and stylus and optical profiling and optical inspection products for microelectromechanical systems manufacturing, as well as products for general purpose/lab applications.

Many analysts feel that KLA-Tencor is less cyclical than peers with best-in-class returns. The Orbotech purchase adds growth/diversity and sales/earnings per share accretion. Risks for the shares include industry cyclicality, relatively muted growth and limited operating leverage.

KLA-Tencor shareholders are paid a solid 2.91% dividend. Stifel has a price objective of $143, but the consensus target price is just $133.36. The shares closed at $103.26 on Wednesday.

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 rest of the year and in to 2019. They also think fears of capital intensity are overblown and the company will outpace industry WFE trends.

Shareholders of Lam Research are paid a 2.49% dividend. The $295 Stifel price target for the stock is well above the posted consensus price objective of $260.33. The shares ended the day on Wednesday trading at $169.26.

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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 0.81% dividend. Stifel has set its price target at $155. The consensus target was last seen at $136.63, and the shares closed Wednesday at $96.

All four of these outstanding stocks to buy are way down from 52-week highs. The recent trade tariffs are a legitimate concern, and earnings reports are right around the corner, 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.