Kelvin,
To answer the question that you asked at Message 17829754
I don't think it makes any difference if the growth in the semiconductor industry is 15%, 20%, or 25%. Most semiconductor stocks are a buy now regardless. People often read a blurb such as that and automatically think it's bad news and dump a stock. You have to consider the valuation of the stock in relation to the news. Making irrational trades such as that is one reason that so many people buy high and sell low. Semiconductor stocks ended their worst bear market in history in Sep/Oct 1998. The table below lists the companies that made up the SOX at that time, and their valuations at the bottom.
Note: I'm sorry that the columns in this post don't line up but I don't have time to fix it.
Philadelphia Semiconductor Index (SOX)
As of August 29, 1998
Total Shares Price Price Weight Price to Price to Price to
Symbol Company Name Price Outstanding Capitalization Weighted Percentage Book Sales Earnings
ADI Analog Devices 14 13/16 162,924,000 $2,413,311,750 $1,481 3.21% 2.03 1.86 16.0
AMAT Applied Materials 26 5/8 366,266,000 $9,751,832,250 $2,663 5.77% 3.05 2.13 16.6
AMD Advanced Micro Devices 15 3/16 143,856,000 $2,184,813,000 $1,519 3.29% 1.14 0.95 NM
INTC Intel 77 1,680,000,000 $129,360,000,000 $7,700 16.68% 5.95 5.30 22.6
LLTC Linear Technology Group 54 5/8 76,854,000 $4,198,149,750 $5,463 11.83% 5.98 8.80 23.6
LRCX Lam Research Corp. 13 3/16 38,219,000 $504,013,063 $1,319 2.86% 0.86 0.48 NM
LSCC Lattice Semiconductor 25 5/8 23,518,000 $602,648,750 $2,563 5.55% 1.35 2.60 11.6
LSI LSI Logic 12 13/16 140,495,000 $1,800,092,188 $1,281 2.77% 1.12 1.37 12.9
MOT Motorola 46 1/8 598,117,000 $27,588,146,625 $4,613 9.99% 2.29 0.94 NM
MU Micron Technology 24 3/8 213,084,000 $5,193,922,500 $2,438 5.28% 1.87 1.77 NM
NSM National Semiconductor 9 11/16 164,234,000 $1,591,016,875 $969 2.10% 0.86 0.64 NM
NVLS Novellus Systems 28 11/16 34,093,000 $978,042,938 $2,869 6.21% 2.85 1.55 12.2
TER Teradyne 18 13/16 84,002,000 $1,580,287,625 $1,881 4.07% 1.54 1.02 9.1
TXN Texas Instruments 51 3/16 390,130,000 $19,969,779,375 $5,119 11.09% 3.35 2.18 787.5
VLSI VLSI Technology 9 7/8 46,475,000 $458,940,625 $988 2.14% 0.82 0.69 8.4
XLNX Xilinx Inc. 33 1/8 72,395,000 $2,398,084,375 $3,313 7.17% 4.42 3.93 19.4
TOTAL: 461.750 4,234,662,000 $210,573,081,688 $46,175 100.00% 2.47 2.26 85.45
SOX Divisor 2.1886484
SOX Index Value 210.97
Here's where the SOX stands today.
Philadelphia Semiconductor Index (SOX)
As of August 1, 2002
Total Shares Price Price Weight Price to Price to Price to
Symbol Company Name Price Outstanding Capitalization Weighted Percentage Book Sales Earnings
AMD Advanced Micro Devices 7.31 341,458,000 $2,496,057,980 $731 2.49% 0.76 0.83 NM
ALTR Altera Corp 11.06 384,231,000 $4,249,594,860 $1,106 3.77% 3.83 6.22 167.39
AMAT Applied Materials 13.7 1,645,112,000 $22,538,034,400 $1,370 4.67% 3.07 4.84 681.95
BRCM Broadcom Corp 16.85 268,562,000 $4,525,269,700 $1,685 5.75% 1.42 4.83 NM
INTC Intel 16.71 6,686,000,000 $111,723,060,000 $1,671 5.70% 3.34 4.58 61.20
KLAC KLA-Tencor 37.03 189,117,000 $7,003,002,510 $3,703 12.64% 3.72 3.90 24.25
LSCC Lattice Semiconductor 5.93 109,637,000 $650,147,410 $593 2.02% 0.83 3.08 NM
LLTC Linear Technology 24.82 317,402,000 $7,877,917,640 $2,482 8.47% 4.47 16.14 41.79
LSI LSI Logic 7.11 369,941,000 $2,630,280,510 $711 2.43% 1.11 1.55 NM
MXIM Maxim Integrated Products 29.96 322,917,000 $9,674,593,320 $2,996 10.22% 5.47 11.42 68.79
MU Micron Technology 18.18 603,632,000 $10,974,029,760 $1,818 6.20% 1.70 5.07 NM
MOT Motorola 11.04 2,270,801,000 $25,069,643,040 $1,104 3.77% 2.25 0.89 NM
NSN National Semiconductor 16.88 179,222,000 $3,025,267,360 $1,688 5.76% 1.87 2.23 NM
NVLS Novellus Systems 25.33 145,184,000 $3,677,510,720 $2,533 8.64% 1.85 4.08 198.39
TER Teradyne 13.76 182,882,000 $2,516,456,320 $1,376 4.70% 1.56 2.51 NM
TXN Texas Instruments 19.97 1,733,669,000 $34,621,369,930 $1,997 6.81% 3.42 5.08 NM
XLNX Xilinx 17.41 336,278,000 $5,854,599,980 $1,741 5.94% 3.26 6.31 NM
293.05 16,086,045,000 259,106,835,440 $29,305 100.00% 2.58 4.92 177.68
SOX Divisor 0.9722665
SOX Index Value 301.4091301
Companies with earnings - 3.68 7.31
Companies without earnings 1.82 3.24
Observations:
1. The valuations today are similar to 1998, although they were a little cheaper in 1998. The valuations today are in line with previous bottoms in the SOX with the exception of 1998.
2. Paying 1 x sales for a viable semiconductor company has historically worked out very well.
3. Companies with earnings, no matter how small, are commanding much higher price multiples to sales and book. For example, the average price/sales of companies with earnings is 7.31 versus 3.24 for companies with losses in the previous 12 months. The average price to book of companies with earnings is 3.68 versus 1.82 for those with losses.
4. In 1998, the market did a poor job of discounting the future earnings of semiconductor companies. Here are some representative examples:
Company 1997 1998 1999 2000
ADI 1.13 0.51 1.16 0.93
AMAT 0.68 0.35 0.91 2.40
AMD -0.07 -0.36 -0.30 3.18
LLTC 0.45 0.57 0.64 0.93
LSI 0.59 -0.49 0.54 0.76
The market was reacting to lower earnings (or losses) in the prior quarter instead of looking ahead to 1999 and 2000. Note that the earnings increased (or loss decreased) from 1998 to 1999 at all of these companies, and this is representative of most semiconductor companies. The market was reactive instead of proactive, and this also demonstrates the earnings power that some of these companies have during up cycles.
The table below contains the valuations of a few semiconductor companies that are in the Z portfolio. They are not in the SOX, but track the SOX.
Total Shares Price to Price to Price to
Symbol Company Name Price Outstanding Capitalization Book Sales Earnings
ADI Analog Devices 21.00 365,696,000 $7,679,616,000 2.78 4.95 82.46
ADPT Adaptec 5.53 106,500,000 $588,945,000 1.07 1.47 NM
ATML Atmel 2.98 467,571,000 $1,393,361,580 0.84 1.01 NM
FLEX Flextronics 7.66 513,000,000 $3,929,580,000 0.81 0.27 NM
Semiconductor Industry 3.04 5.20 57.94
These companies are all trading at very reasonable valuations relative to the semiconductor industry. ADI is the only one that has earnings in the last 12 months, and it too is reasonably priced compared to other companies that still have earnings.
My bottom line opinion: Buy viable semiconductor companies that are trading at 1 x sales and you'll make money over the next year or two. For the most part, semiconductor stocks are not a good long term investments because they are so cyclical and volatile. They are however very good trades even if you don't pick the absolute bottom and top. I made that same comment sometime in 1998 on this very thread. By the way, here is where a few of the stocks mentioned in this post traded from the bottom of the cycle in 1998 to the top of the cycle in 2000.
ADI 6 to 103
ADPT 8 to 64
ATML 1.50 to 30
FLEX 2.75 to 45
INTC 19 to 75
I am NOT suggesting that the group will rally to this degree in the next cycle. In fact, I doubt they will; however, they could easily trade 2 to 4 times higher than where they trade today, and I think that the downside risk is limited. |
