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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Paul V. who wrote (3754)	12/12/1997 5:51:00 AM
From: Justa Werkenstiff	Read Replies (1) \| Respond to of 10921

FORTUNE December 29, 1997 The 1998 Fortune Investor's Guide 10 Great Bargains to Snap Up Now Our picks have been punched out, maligned, gored, and ignored. They're a value buyer's dream. by Bethany Mclean, Erick Schonfeld, & Nelson D. Schwartz Semiconductor Equipment Stocks For most value investors high tech equals high wreck, and that has certainly been the case with semiconductor capital equipment manufacturers lately. The stocks of companies such as FSI International (ticker: FSII), KLA-Tencor (KLAC) and Silicon Valley Group (SVGI)--which make the machines that make semiconductor chips--are down as much as 47% from recent highs. These stocks were favorites of momentum investors, but now, during antimomentum times, they are being dumped, creating bargains in the process. "The group has come down on fears of the Asian flu," says Deutsche Morgan Grenfell analyst Elliott Rogers. Investors are worried that capital constraints will cause Asian chip manufacturers to postpone the building of new semiconductor fabrication plants. While that will dent earnings growth for the big U.S. equipment manufacturers, it may not be as devastating as many investors fear. In fact, Morgan Stanley's Jay Deahna thinks that capital spending by semiconductor makers in Korea and Japan will decline only 10% next year, and that should be offset by strength in North America, Europe, and Taiwan. The truth is that nobody really knows what will happen in Asia, but as uncertainty builds, P/E multiples contract. KLA's multiple, for instance, has come down from 28 to 15, on next year's First Call consensus earnings estimates; FSI's 1998 P/E is 16, down from 25; and Silicon Valley's has fallen from 18 to 12. The hard choice for investors is deciding which of these stocks to own. Value guru Martin Whitman of the Third Avenue Value fund (average annual return since 1990: 23%) has bought a basket of them. Whitman hastens to add that he is not making a market-timing call ("I'm into finance, not abnormal psychology," he says), but he figures that since all the equipment makers are cheap, owning a lot of them is a good way to spread the risks. If you're narrowing down the list to one, make it Silicon Valley, now at $24 a share. Reason: A third or more of KLA's and FSI's revenues come from Asia, but Silicon Valley derives only about a tenth of its $595 million in annual sales from the region. Moreover, Silicon Valley is poised to break away from the pack over the next two years as semiconductor production shifts to 0.25-micron chips (the number refers to the width of the lines that make up the chips' circuits). The company already makes the equipment that prints 0.25-micron circuit designs onto the surface of chip wafers, and as of December, it had the only production-ready machine in its class. Rogers expects earnings to triple by 1999. Finally, Silicon Valley has $207 million in cash--which works out to $7 per share--and trades at only 1.4 times book value. (Whitman prefers to pay no more than 1.8 times for high-tech stocks.) FSI is trading at 1.5 times book and KLA at over three times. pathfinder.com