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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: LastShadow who wrote (4099)	11/25/1997 11:48:00 PM
From: AlienTech	Read Replies (1) \| Respond to of 120523

Hey whats with the little box I get below the messages now??? never seen it before... Anyway asian markets looks good but futures looking like everyone just wants to go on vacation.. No entry prices for the watch list? (just asking..) maybe I missed it.. too much smoke err smog around here.. brrr its getting cold, especially the rain and wind and I think it must be in the low 50's. BULLISH ARTICLE From Infrastructure's 11/21/97 Daily Notes: APPLIED MATERIALS REPORTS ========================== An excellent report from Applied Materials (AMAT) was something we, and others on the street, were anticipating. It was really not that hard to figure out, all we had to do was look at the numbers we receive each month in Industry Pulse and SEMI's Express Report. Of course, those two items are only a small portion of the data we collect to solidify our view. We mentioned our talks with one Applied's suppliers in the October issue of the Monthly Letter. Business conditions at this particular precision sheet metal fabricator occur in lockstep with the construction and delivery of Applied wafer processing equipment. Despite the record revenues and orders, Wall Street's initial reaction is to view the future with great trepidation. This trepidation flies in the face of the early rally we witnessed this morning - the bout of profit taking after the run we have seen this week should not be viewed as a surprise. On the conference call it was evident that semiconductor equipment analysts were feverishly searching for holes in Applied's bullish story. The investment community seems to believe they will be blind sided by another downturn - just like they were in 1996. Several callers asked about the drop in the October shipments and bookings numbers relayed by SEMI's Express Report. In what appeared to be an attempt to quell some concern over this weakness, Applied management told the analysts not to put a lot of faith in SEMI's book-to-bill numbers because they were not relevant to the business conditions the company was experiencing. Anyone who has followed the semiconductor equipment industry knows it has been foolish to dismiss the importance Applied's guidance but we are going to disagree with their comments about SEMI's bookings and billing figures. We would suggest Applied's comments be added to several data sources. We also find it important to rely on the experience our staff has developed working in the trenches of the device manufacturing business. What does the future look like? Yesterday we gave you some views on the 300mm transition and the potential for a "window" of slowdown next year. If you will recall, SEMI's George Lee called this a "double hump". This potential "window" was downplayed on the conference call because high volume tool shipments will not take place until the turn of the century. Even though we believe the 300mm transition will create a period of "ready, aim, wait", this scenario does not appear to concern Applied's management. Why should one expect any different? Because of their size Applied's results primarily feel the impact of large equipment purchases. Deliveries for pilot lines are, by all rights, puny compared to the massive orders the company normally receives. All we have to do is look at the size of the orders Applied announced with the earnings release to support this line of thinking. Regardless, if we are right and the industry goes in to a state of "ready, aim, wait", the 300mm transition will affect business conditions at Applied. One has to wonder if this is why many money managers are selling their shares in the face of a strong quarterly report. Based on what Applied management stated during the conference call, the next six months will continue to be supported by a ramp to produce devices with 0.25 micron feature sizes. 40 percent of Applied's business was generated by the sale of tools with the ability to produce 0.25 micron devices. It is our belief that the DRAM manufacturers will have to move very aggressively to smaller feature sizes to maintain their profitability. Bookings for Q497 totaled $1.37 billion, twice the amount booked in Q496 and 10.9 percent higher than numbers released in Q397. Applied's current backlog now totals $1.72 billion, substantially higher than the $1.42 billion posted last year. Gross margins reached 48.1 percent, the second highest level since Q289. Volume manufacturing, a restructuring of warranty agreements and material cost reductions all played a part in the improvement of gross margins. A few more tidbits from the conference call: 1. The logic and microprocessor segments of the semiconductor industry continue to invest in capacity. 2. The arguments about the industry being in a state of overcapacity is somewhat moot given the fact that we are embarking on a major technology shift. (We find these comments very relevant. The industry is transitioning to a new generation of devices that will ultimately prompt an increase in final demand. Whether or not this new growth phase occurs after a larger scale slowdown remains to be seen.) 3. 300mm customers have been approaching the company to ensure future success. Applied's guidance to investors suggests that earnings for 1998 will come in around $2.05 to $2.10. At the current quote, the forward P/E on the shares stands between 17 and 18. This earnings forecast appears a bit conservative and has likely been tempered by the a limitation of visibility beyond the first six months of 1998. At this juncture we cannot tell you with absolute certainty that these numbers will be adjusted higher but if the industry does continue expanding one can assume Applied will be participating on a very large scale. We find it heart warming to hear management agree with the numbers in the demand study we delivered inside October's Monthly Letter. Applied expects the semiconductor business to grow about 18 percent in 1998. Semiconductor capital expenditures are expected to grow percent with spending for equipment anticipated to rise to 11 percent. As in the past, Applied expects their growth rate to be faster than the overall rate posted by the capital equipment industry. In our opinion, Applied management was decidedly upbeat and did their best to allay the fears about the debacles transpiring in the Asia Pacific. Management even went as far to suggest that monies used in more speculative investments will now be diverted to the construction of new technology development. We are not going to spend a lot of time down playing the effort to minimize the potential for a slowdown. Are we concerned? If there is a pronounced slowdown we believe it will take some time to materialize. The first half of 1998 looks as though it is in the bag but the "ready, aim, wait" accompanying the move to 300mm will create some uncertainty. With this in mind, we feel the need to emphasize the importance of applying capital to stocks in the semiconductor equipment business during periods of weakness. If Applied shares were to retreat to the low $30's, we will consider initiating a position in the Daily Notes Portfolio.

To: LastShadow who wrote (4099)	11/25/1997 11:49:00 PM
From: Jenna	Read Replies (2) \| Respond to of 120523

Watch List November 26: KEG,DBRN,SMTC,IMIC,WII,MIND,VRC,YELL,NACT TD, RY, OFIS (earnings plays these last three) ________ NACT with swelling volume day before earnings. DBRN good earnings and 22 large block buys today. KEG.. $10 mil.. stock buyback TD. Toronto Dominion Bank RY and Royal Bank of Canada reporting respectively December 2 and 3rd have extremely fine earnings and are both trading at a discount to their true value.. OFIS had 23 block buys today