Top Picks 2021: Applied Materials (AMAT)

01/07/2021 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Semiconductor-equipment maker Applied Materials (AMAT) has participated in its industry run-up, returning 57% over the last three months, explains Richard Moroney, growth stock expert and editor of Dow Theory Forecasts.

Demand for the equipment needed to make semiconductors remained robust throughout the pandemic, as manufacturers played the long game and kept on producing when possible, rather than idling factories.

The company makes a wide variety of semiconductor equipment and also provides software and services, a growing unit that now generates more than one-fourth of company revenue.

The equipment maker offers the widest product range in the industry, with equipment designed for etching, deposition, inspecting, testing, and other specialty tasks. Applied Materials’ solid recent results reflect the decisions of many large chipmakers to maintain their production cycles despite the coronavirus.

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CEO Gary Dickerson said the pandemic has accelerated the ongoing move toward digital business across a wide swath of end markets, a trend he has long cited as a reason for optimism.

Applied Materials remains reasonably valued at 16 times expected earnings for the next fiscal year, 12% below its industry median. We know the semiconductor boom won’t last forever, and we’re probably closer to the end than the beginning.

But given the likely economic recovery over the next year, we think Applied Materials can beat market projections for earnings growth of 9% this year and 6% in fiscal 2022 ending August. Admittedly, these shares can be volatile, and we’ll keep a close watch on them.

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