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Technology Stocks : Applied Materials No-Politics Thread (AMAT)
AMAT 230.15-3.2%Nov 4 3:59 PM EST
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To: robert b furman who wrote (8557)1/23/2004 10:30:47 AM
From: Cary Salsberg  Read Replies (1) of 25522
 
Bob and Thread,

I listened to the KLAC conference call last night and read the Merrill Lynch review this morning.

1. Business is great. Orders up 50% in the DEC Q and are expected up at leas another 15% in the Mar Q. Prospects are very positive, finances are great, and profitability potential (gross margins) exceeds 2000 peak.

2. Investment opportunity is not that great. Merrill Lynch raised CY05 (calendar year) EPS estimate to $2.30. At the KLAC thread a post had another anlyst estimate at $2.56. Merrill says KLAC can trade to 30 times the cycle peak and says the peak is the CY05 value. That gives $69 for Merrill and $77 for the other. I am using a rule of thumb for best case which is a peak in CY07 at double CY05 and a peak multiple of 20 (historical and I expect rates to be considerably higher in 2007). That gives $92 based on Merrill's numbers and $102 based on the other analyst.

3. It is not surprising that the tech market consolidates here. There have been big moves from the lows of Oct 2002 and most of the modest expectations the "experts" have for future growth have been discounted.

4. We have two tasks, here. One is to try to refine our estimates for the timing and extent of the earnings and price peak. The other is to have quantitative measures to allow us to take advantage of "true" irrational exuberance. The second task suggests that, at a minimum, we sell covered calls on KLAC somewhere between $69 and $92 ($77 and $102) or possibly, at more than a minimum, lighten up or sell out.

I will provide these updates for AMAT, KLAC, NVLS, and possibly ASML. I think any other updates will help make things clearer. I expect the timing of the business peaks to be pretty much the same for most of the players.
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