Markets
MU

These 2 Semiconductor Stocks Are Still Hot Post-Earnings

Investors with a short-term investment plan may not be interested in semiconductor equipment stocks. They rarely see news-making variation quarter to quarter and the direction of their results can be predicted in advance. That's because major equipment buyers (their customers) offer capex estimates which in combination with market research data on new fabs coming to market leave little to imagination.

But that just means they are suitable for longer-term calls on whether to buy or sell.

A negative sentiment follows when individual memory and logic makers and specialized foundries have equipped their fabs and will only make moderate purchases to supplement existing equipment. They will try to make their fabs as efficient as possible to continue without major investment for as long as possible because building fresh capacity is extremely expensive.

But things turn positive when there's good reason for customers to upgrade existing equipment either due to technology inflections like shrinking geometries, 3D NAND, etc or due to increasing demand. So that's when we need to take a look at the markets driving the demand for such technologies, whether such demand is likely to sustain and for how long.

Since foundries like Taiwan Semiconductor TSM , logic makers like Intel INTC , memory makers like Samsung and Micron MU are all trying to bring to market products based on new technologies and China is trying to get a number of fabs and foundries online both this year and the next, the spending environment remains positive.

Add to this the fact that concepts like cloud computing, machine learning and artificial intelligence are greatly increasing the need for computational efficiency in data centers while the concept of IoT and the resultant data that is generated is raising demand for a humongous number of chips that must be manufactured. Besides, industries that have thus far stayed away from automation and technology (mining is an example) are beginning to consider the investment to drive efficiency in operations.

Unlike semiconductor makers, semiconductor equipment makers still aren't too many and it's still a handful of companies that rake in most of the revenue and profits. Because semiconductor equipment is extremely expensive to develop, this concentration of capabilities is not likely to go away any time soon.

Of course, China does have a semiconductor focus, but current efforts are focused on internal production of its huge chip consumption. So it remains a buyer of equipment and will remain so for a few years.

With that backdrop, let's jump to the stocks-

Three semiconductor equipment companies have reported September-quarter results and there's a couple more left to round out the top five. Of the companies that reported, Lam Research LRCX and KLA-Tencor KLAC beat the Zacks Consensus Estimate while ASML Holding ASML missed.

Lam has a Zacks Rank #1 (Strong Buy) (you can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here )and VGM score "A." Its Zacks Consensus Estimate for the current quarter has moved up 21.6% since it reported results last week. The March quarter estimate is up 12.0%.

LAM RESEARCH Price and EPS Surprise

LAM RESEARCH Price and EPS Surprise | LAM RESEARCH Quote

KLA has a Zacks Rank #2 (Buy) and VGM score "A." Its Zacks Consensus Estimate for the current quarter has moved up 10.3%. Since it reported results last week, estimates for fiscal 2017 and 2018 are up 2.4% and 2.1%, respectively.

KLA-TENCOR CORP Price and EPS Surprise

KLA-TENCOR CORP Price and EPS Surprise | KLA-TENCOR CORP Quote

ASML may have missed estimates and seen moderate correction in forward estimates, but the company has received a number of orders for EUV machines that will be a positive going forward. Growth can be a challenge however since EUV machines generate lower margins, so can result in a negative mix if legacy products see weaker sales.

The company has a Zacks Rank #3 (Hold) and VGM score "F." Growth can be a challenge, however, since EUV machines generate lower margins, so can result in a negative mix.

Last Words

Investors should note that the Zacks Rank is a short-term recommendation covering the next 1-3 months although today's picks also look good as long-term investments.

Confidential from Zacks

This week, Zacks researchers have named 7 other stocks that look to break out even sooner than today's Bull of the Day. You can see these time-sensitive tickers free, and access additional trades that are not available to the public. Simply click here>> .

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

INTEL CORP (INTC): Free Stock Analysis Report

MICRON TECH (MU): Free Stock Analysis Report

KLA-TENCOR CORP (KLAC): Free Stock Analysis Report

ASML HOLDING NV (ASML): Free Stock Analysis Report

LAM RESEARCH (LRCX): Free Stock Analysis Report

TAIWAN SEMI-ADR (TSM): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

MU ASML INTC LRCX KLAC

Other Topics

Earnings Stocks

Latest Markets Videos