With so many semiconductor stocks down significantly from their highs, one semi cap equipment maker stands out; the shares trade at just 7 times earnings — even as earnings will rise to another high this year, notes Adam Johnson, growth stock expert and editor of Bullseye Brief.

Ultra Clean Holdings (UCTT) provides a differentiated product in a mission-critical sector poised for years of growth. The company is the industry’s leading supplier and servicer of highly-controlled, gas-filled chambers where pure silicon wafers can be flawlessly etched into precision semiconductors.

The world’s two largest semi cap equipment makers — Applied Materials (AMAT) and Lam Research (LRCX) are the company’s two largest clients, accounting for 63% of revenues. Other important customers include ASML Holdings (ASML), Intel (INTC) and Taiwan Semiconductor (TSM).

Without Ultra Clean’s vacuum equipment and on-going service agreements, the semiconductor industry would come to a standstill. Revenues have doubled from pre-Covid levels as rising semiconductor content in everything from wearable to cars powers new demand for wafer fab equipment (WFE).

Ultra Clean’s revenue growth has outperformed the broader wafer fab equipment market by an average of 10 percentage points over the past several years. The shares currently trade at 7.5 times forward earnings, compared to a 10-year average of 12x and the S&P 500 Index at 17x.

I see growth over the next several years powering a potential doubling in the stock as multiples reflate. My target of $62 reflects a weighted average of three scenarios: Bull, Bear and Base Case. I think my assumptions are fairly conservative. I would also note that the stock was trading above $60 earlier this years — so even my bull case of $78 is not a reach.

Semiconductor stocks are very cyclical, and right now they are pricing in a major slowdown. As with many sectors of the market, I think the pendulum of negatively has swung too far, and leading semi stocks like UTCC will rebound.

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