RE: " I would appreciate your insight into this group of stocks since this is the first time I will be participating in a cyclical rally."
The semi-equips have been cyclical growth companies. The secular growth is due to the penetration of chips into many areas of the economy and, more importantly, the growth of technology. The cycles have been due to the huge quantum cost of a chip fab and the long lead time to build, fill, and ramp production. These, cost and lead time, have caused periods of over and under capacity, and cyclical orders.
Today, we do not have a typical semi-equip down cycle. The decrease in equipment orders has not been the result of overcapacity created by new fabs coming online. In fact, the equipment which generated the huge revenues of 2000 are probably still waiting to be fully ramped up. The down cycle is caused by the huge falloff in the business of semi manufacturers customers. The PC, wireless and wireline infrastructure, and wireless handsets are all in a slowdown simultaneously. Some of the reasons are the huge infrastructure buildup associated with the dot-com bubble and the lack of killer aps to drive PC and wireless handset upgrades.
In previous, typical cycles, the bottom formed a V and buying at the bottom proved very rewarding. Recent comments from NVLS CEO Hill indicated that this bottom would be a U. The longer these companies must operate at low order levels, the greater chance for both operating and restructuring losses. Losses raise the spectre of business failure. In a U bottom, stock purchases need to wait until there is a sign of recovering orders.
I have published my buy prices for AMAT, KLAC, and NVLS on the AMAT thread. For example, I will be buying equal dollar amounts of AMAT from $40 down to $25, in $2.50 increments. I will not wait for order improvement if my prices are reached, but I will not buy at current prices unless I see order improvement.I |
