GM, I must be dreaming too much about the weekend, but I did not see why AMAT was a buy in that article. I also do not agree that AMAT is just selling off with the market. AMAT was going down long before the recent market weakness and it failed to react positively to the earnings surprise and analysts' glowing comments (how come no one calls the analysts stupid when they do that? <G>)
Before I say anything else, let me say that I probably sounded more bearish than I am. At the moment I have no positions (long or short) in AMAT. If I had to invest in AMAT, I would go long and sell calls, but about 2 months ago I started to reduce my holdings and as of 3 weeks ago I am out of all stocks except one (and not a good one at that). My investment method is very contrarian and as such it is natural for me to usually take the opposite side of the thread's flow. Don't take this as my endorsement to sell (or short) AMAT.
With that in mind, let me say this: there are very few times that one can have the conviction that a stock is a screaming buy. If you find yourself often believing strongly in your stocks, you are probably in the wrong game. More often than not, you'd benefit from being a position trader (i.e. keeping the stock for less than a year), which implies a lot of flexibility.
As an investor, it should have been clear that AMAT, being the great company that it is, has been doing R&D and been adding value to its business over the last 3~4 years. So last fall, when you could have bought it at about the same price as summer of '95, AMAT was a good investment, even if it had failed to rise as it did. Looking at it now, I cannot say with conviction that AMAT is a better buy now than it was in late '97. So an investment it is not IMO.
As a trader, you need to keep a close eye on the market sentiment and the market dynamics. A lot of analysts have targets of mid 80s to 90s for AMAT. This along with its recent sell off, makes it likely that once the market recovers, AMAT will go to ~70. The down side is 45~52 (closer to 52). This makes it a good risk reward trade, especially if you sell options, but you have to be nimble [bad traders become investors]. All this semiconductor economics and business analysis should be a side interest to you, if you are a trader. It only serves to hone your view of the market sentiment and various perspectives.
I think after 20 years, the silicon business is due for a big change. Bye-bye to PCs and their related businesses -- hello to DSP, JAVA chips, and smart little gadgets. Just as trains are still around, the PC will stay too. But it will not be as dominant. The problem, as always, is time and timing. There are far too many companies relying on the PC business. Few will have the courage, foresight, and the talent to get out and ride the next wave. Most will have a slow death. I agree that no matter what kind of chips and devices will be dominant, AMAT will be able to supply the equipment to make them. The problem is who will they sell it to? If most of AMAT's customers are PC based, and the PC business is imploding [please don't bring DELL into this] how can AMAT sell its wares? It takes time for the next wave industries to develope.
One last thing. There is a difference between "Quantity Supplied" and "Capacity to Produce". Both of these are often refered to as "Supply", which is confusing. During the Asian crisis, liquidity crunch forced many of the Asian chip makers to postpone chip production and equipment purchases. This led to a shift in the quantity supplied of the chips and the quantity demanded of the equipment. However, it did not change the supply and demand curves (i.e. capacity). Those companies that are buying equipment to produce the same kind of chips that they made before the crisis, will most likely find themself in a crisis in another 18 months.
Have a great long weekend,
Sun Tzu |
