To: Big Bucks who wrote (10855 ) 11/12/1997 8:33:00 PM From: Steve Byers Read Replies (1) | Respond to
Gunnar Millar, PW's Analyst on Semi Cap Equip Group... today at 1:28PM over PW's info line... the group is 30% off their highs in recent months but still up 70% YTD and 115% YOY. the big issues are:asia and the demand in the pc market and how it will impact cap-ex over the next year. we remain long-term positive on the group because we should see a group recovery on higher '99 eps estimates. ***asia has been the main driver of the group decline. fears in asia continue to be offset by continued orders from the pac rim for example teradyne just today received a significant order in s. korea. so the data doesn't necessarily gibe with the market sentiment. we thought the aea conference last week would drive prices higheralong with intel'spositive comments about cap-ex (intc is 15% of global cap ex) and intc indicated that cap ex would be up. next catalyst could be amat reportingon 11/20. the outlook from amat should be positive, but the stocks will continue to trade sloppilyuntil there is resolution in asia. for longer term holderswith at least a 12 month horizonwe feel that this represents a compelling value for the sector. we like: ter, klac, amat... and these are all rated #1 picks and are our "core" big cap stocks. investors should remain aware that there are plenty of exogenous concerns that remain in the sector: namely asia, and the veracity of demand in the pc sector. buyers looking for a big pop in these stocks are overly optimistic, while patient long term holders should be alright. if the group were to trade to their bottom of their cycle, there could potentially be up to 30-40% downside from here. the traditional cycle is 2 up years, one down. we are only 6 months into the current cycle, so an end of cycle move seems premature. while the risk reward of the group is still good, investor sentiment on the street is decidedly negative. in summation, our long term bullish stance on the group is based on a secular growth rate of 18-20%. we view the current situation as an opportunity to pick up leaders in the sector at a relatively cheap historical level. but be aware that there is still downside risk. while the near term could be ugly, the long term looks better... focus on the core group, ter, klac, amat...all #1 ranked picks...
