Applied Materials
schaeffersresearch.com
Hoover's tells me that Applied Materials (AMAT: sentiment, chart, options) is the world's largest maker of semiconductor production equipment. AMAT's customers include Intel (INTC: sentiment, chart, options), Samsung Electronics (which is Korean and does not trade on any U.S. exchanges), Advanced Micro Devices (AMD: sentiment, chart, options), and Freescale (FSL: sentiment, chart, options).
I chose AMAT as my featured stock today because its June 18 calls (ANQ FS) were trading very actively this morning. Open interest at the start of the day was a little less than 40,000 contracts, but 44,710 contracts had crossed the tape by the time I grabbed numbers for this observation.
Late yesterday, AMAT announced that it earned 26 cents per share in the second quarter on sales of $2.25 billion. The consensus expected earnings of 23 cents per share on sales of $2.1 billion.
AMAT also forecast stronger-than-expected growth. The company forecasts financial targets that exceed the Street's expectations. AMAT stated that it will invest more on machines in 2007 as new factories making consumer electronic goods begin production. The company tagged sales in the range of $2.36 billion to $2.475 billion with per-share earnings between 28 and 30 cents. The Street currently expects earnings of 27 cents per share with sales of $2.33 billion.
Today, AG Edwards reiterated the stock at "buy" and RBC Capital Markets reiterated it at "sector perform." Nevertheless, at last check, the stock was down more than five percent at $16.92.
From a technical perspective, AMAT is sputtering along, with no clear uptrend to be seen. Last month it slipped below the support of its 160-week moving average, and this month we saw the 160-week trendline set in as resistance, pushing the stock below its 80-week moving average for the first time this year.
Let's take a fresh look at AMAT's sentiment backdrop:
Percent of analysts tracked by Zacks who rate the stock with a "hold" or worse: 54%
Number of analysts tracked by Zacks: 22
Short-interest ratio: 1.04
Schaeffer's put/call open interest ratio (SOIR): 0.33
SOIR percent rank: 1
Overall Schaeffer's Equity Scorecard rating: 4.0
I see a big risk of downgrades here. There are 11 "strong buy" ratings listed on Zack's, and that seems to be too optimistic. If the brokerages are yelling "buy" and the stock is still declining, how much money can be waiting on the sidelines?
Short interest is modest, and there isn't a great deal of fuel for any short-covering action. Meanwhile, sentiment in the options pits is close to an optimistic extreme. The Schaeffer's put/call open interest ratio (SOIR) is almost at an annual low. On our Schaeffer's Equity Scorecard, the stock earns 4.0 out of 10, suggesting that the path of least resistance still lies to the downside.
There is a little good news to be seen, though. I think AMAT is in a (very) gently uptrending channel, and it's just about hitting the lower rail. For conservative buy-and-hold investors, it might be one to watch. |
