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Politics : Formerly About Applied Materials
AMAT 238.06+3.1%1:05 PM EST
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To: Gottfried who wrote (21085)7/4/1998 7:23:00 AM
From: Justa Werkenstiff  Read Replies (4) of 70976
 
GM and All: Much has been made of leading indicators to suggest a stock price turnaround in AMAT. I recall the Infrastructure charts you referenced recently:

Message 5039497

They looked at monthly bookings for both front end and back end separately (two charts) and searched for a correlation between those figures and stock price movement.

Cowen and Company did a study last month and searched for the best leading indicator of an industry upturn. Cowen looked at total front and back end book-to-bill, DRAM pricing, first and second derivatives of DRAM pricing, total front and back end orders, capacity utilization and others. It then plotted these measures against the stock price for AMAT in search of the best correlation.

Their conclusion was that the best correlation that served as a leading indicator for upward stock rallies is total orders as reported by SEMI. They found that a minimum turning point in total orders as measured by a three month moving average has preceded major price movement in the last two cycles.

Here are the three month moving averages I calculated since August 1997:

August 1400.50
September 1468.53
October 1518.00
November 1595.06
December 1589.03
January 1515.66
February 1382.46
March 1240.06
April 1136.86
May 1089.86

As we all know, May showed a slight uptick in total orders. However, anecdotal evidence suggests orders have dropped off since then. The three month moving average helps to smooth out these aberrations. I do not know how successful one might be in catching the bottom with such an approach. If someone wants to graph it and post their results, it might prove interesting. I don't have access to the graph at this time. Anyway, it is interesting to know what at least one institution will be looking at.

Cowen sees DRAM demand/supply equilibrium in Q2 1999. I think they are just echoing AMAT's guidance. They are looking for increased spending at the .18um level going into 1999.
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