From the L.A. Times business section today. A discussion on AMAT by James Peltz and Michael Hiltzik. I couldn't have said it better myself. Kind of makes me want to go out at the opening bell tomorrow and buy some more... Jeff
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Applied Materials (AMAT)
Jim (Buy)
Mike (Buy)
Mike: To my mind, this is one of the few pure plays in the semiconductor industry.
Jim: It's the world's biggest maker of chip-making equipment.
Mike: No matter what type of semiconductor company you're talking about, it most likely buys a lot of its gear from Applied Materials. So if you can't decide whether to invest in Intel or Advanced Micro Devices or VLSI Technology, you can just invest in this stock.
Jim: Now, as our readers might recall from our chat about Western Digital a while back, this whole industry is extremely volatile, constantly going from boom to bust. Right now it's booming.
Mike: And the lesson here is: These are stocks you own for the long haul. The semiconductor industry will keep growing smartly over the next few years, but it won't be a straight line up. You'll get your head handed to you if you try to step in and out of Applied Materials.
Jim: Here's the latest evidence: Earlier this year a whiff of a slowdown in the personal computer industry sparked a meltdown in tech stocks, and Applied Materials wasn't spared.
Mike: But over time?
Jim: This stock has soared 3,000% since 1990, and a good chunk of that has come in just the last few months, as evidence mounted that the semiconductor industry was rebounding. Applied Materials has more than doubled since Sept. 30. The question now, of course, is whether the chip business is still in the clover.
Mike: Well, the key measurement of health in this business is the book-to-bill ratio, which is basically a ratio of new orders to old orders.
Jim: The ratio has been running above 1.0 lately, which is good news, especially since it had been lagging below 1.0 for much of last year.
Mike: True. But chip-making is an industry in which there's almost too much information. People watch these cycles of chip purchases and capital spending so closely, and project forecasts from the existing numbers so frequently, that it's hard for investors to keep their eyes on the long-term goal. But they should.
Jim: Shut out the noise.
Mike: Right. As for Applied Materials, I like that it's not dependent on any one product line. In other words, it doesn't matter much whether there's a PC slowdown ahead, or a cellular-phone slowdown or what have you, because none of them by themselves will sink the company.
Jim: It will matter in the short run, as we saw earlier this year when Applied Materials' stock suffered the same fate as all tech shares.
Mike: That will happen, and you just ride it out. Look, there's going to be great demand for semiconductors in the coming years because the number of devices that use these things is proliferating at an unbelievable rate. Every day there's some new device that incorporates a microprocessor or memory chips. All of this makes Applied Materials a dynamite player.
Jim: But let's not forget Applied Materials' own skills. I like how management has made it a high priority to boost the company's profit margins, to about 20 cents per dollar of sales after taxes. The company's order book is swelling, and Applied Materials is rolling out a bunch of new products this year. And it doesn't hurt that Asia, which has lots of chip makers, is starting to recover. I always get a little nervous when I see a stock--even a tech leader--selling for 57 times earnings. But I'd still buy this one.
Mike: There are going to be uses for this company's equipment that we cannot even imagine today.
Jim: One other thing: That recent sell-off of the tech stocks has ...
Mike: ... Made this stock an even better buy.
Write or e-mail with a stock you would like to see discussed in this column. James Peltz (james.peltz@latimes.com) covers the markets and corporate financial trends. Michael Hiltzik (michael.hiltzik@latimes.com) covers technology and entertainment and is the author of a new book, "Dealers of Lightning: Xerox PARC and the Dawn of the Computer Era." Either can also be reached at Business Section, Times Mirror Square, Los Angeles, CA 90053.
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