Attached are articles from Barron's and the Wall Street Journal that both speak of the value in semiconductor equipment stocks.
I bought several after reading about them in the June issue of the "Value Advisor" (http://www.msn.fullfeed.com/~sequel/value.htm).
Here's the Barron's article:
By Leslie P. Norton
It's no secret why semiconductor-equipment companies have been
stumbling, Barron's reports. A glut of chips means machines to
make them are idling, while slowing demand for personal
computers -- big users of these chips -- further dents demand.
That's why Hewlett-Packard's third-quarter earnings collapsed,
as HP unveiled last week, and that's why chip equipment
manufacturer Applied Materials disclosed a couple of days ago
that it plans to lay off 7% of its workers. Recently Dataquest,
a research outfit, said equipment sales will drop in '97, after
growing 17% in '96 and 77% last year.
Which is why Marty Whitman, vulture investor, is buying
chip-equipment suppliers. Recently, Whitman's $500 million Third
Avenue Value fund plunked more than 5% of assets into equipment
makers and plans to raise its stake even more. "We're buying
like they're going out of style," he says.
The 71-year-old investor isn't interested in stocks just
because they've declined. "I don't know of anybody with any
degree of sophistication, from Warren Buffett to Carl Icahn, who
makes any type of investment decision based on the market --
that's a refuge for incompetents!" he exclaims. Instead, his
ideal find is the company with a short-term outlook so dismal
that its shares trade at perhaps 50% of what a knowledgeable,
long-term investor might pay.
Whitman is, in fact, just such an investor, having honed his
skills through decades of bankruptcy investing. Such a strategy
might not yield immediate returns: Since December, Third Avenue
is up just 5.9%, versus 8.1% for the average diversified U.S.
stock fund. But Whitman's concentration on beaten-down stocks
means the fund fares better during market declines. So far in
the third quarter, for example, Third Avenue is down just 1.2%,
about half the decline of the average stock fund -- and over the
long haul, the fund has fared better. Since its 1990 inception,
Third Avenue Value is up 20.7% a year.
Among the fabrication-equipment makers the fund has picked up
recently are thermal processor AG Associates (at 5 1/2 last
week); Applied Materials (at 25); Electroglas (at 12 1/2 );
Electro Scientific Industries (at 18 1/4 ); FSI International
(at 11 7/8 ); Silicon Valley Group (at 17 3/4 ); and Veeco
Instruments (at 11 7/8 ).
Investing in equipment makers was the brainchild of Curtis
Jensen, 34, an analyst with the fund who was Whitman's best
student at Yale School of Organization and Management and who
Whitman claims will be his successor in the event of his
unlikely retirement.
Companies like Applied Materials, says Whitman, have cash well
in excess of liabilities and good balance sheets. Electroglas,
for example, has cash per share of $6.81, representing 380% of
its liabilities. FSI has cash of $3.65, or 141% of debt; while
Silicon Valley Group has $10.18 in cash per share, or 155% of
debt.
Only about 40% of chips are used in personal computers, a
percentage that "ought to be markedly diminished" in five years
or so as more chips find their way into credit cards, debit
cards, vehicle registrations, telephones, household appliances
and automobiles. "They're going to have a bad time for a year or
so," Whitman says, "then there's going to be explosive growth.
The way the market is pricing these things, they're super
companies.
8/26/96 Abreast Of Market -2-: Semiconductors May Heat Up
The search for stocks that Wall Street no longer loves also
fascinates Barbara Marcin, a portfolio manager at Citibank
Global Asset Management. She thinks her own value discipline
will also reap greater rewards as she scoops up some of the
highfliers that have recently stumbled.
"For one, the recent lull in the stock market has provided us
with a chance to re-evaluate the technology sector," Ms. Marcin
says. "If you have a time frame that stretches out a couple of
years, there are some good opportunities starting to present
themselves in that area. Previously, a lot of those stocks were
out of our range."
Recently, Ms. Marcin has added Hewlett-Packard to her
portfolio. The computer and software concern fell out of favor
when it reported weaker-than-expected second-quarter earnings,
but Ms. Marcin believes Wall Street overreacted, and the
company's longer-term prospects remain strong.
While she isn't yet prepared to take the plunge, Ms. Marcin says
she is studying Micron Technology and Applied Materials, two
semiconductor-related concerns that have crumbled in the past
several months as standard memory-chip prices have plunged.
Micron, for instance, is down 75% from its 52-week high. |
