Analysts Find Value in Some Chip Stocks
Despite nearly across-the-board gains seen in the semiconductor sector in recent months, analysts said Tuesday that good values still can be found among the lower-profile stocks in the group.
“Business is good. It is as simple as that,” David Wu of ABN Amro Inc. said. “It looks like it is going to get better next year.”
The Philadelphia semiconductor index, which tracks the share performance of 16 major chip makers and equipment suppliers, has risen 20% in the last week, including a 5% jump Tuesday. It is now up 250% from its trough a year ago.
Among the analysts’ picks:
* Etec Systems Inc. (ticker symbol: ETEC; close and change: $44.25, up $1.13), which supplies pattern-making equipment to print circuits on silicon, and Cymer Inc. (CYMI; $45.25, up $2.69), a maker of lasers used in the printing process, aren’t as visible as industry leaders such as Intel Corp., but have equally good potential, Wu said.
Etec, which has posted losses for its last two quarters, is expected to turn a profit of 8 cents a share for its quarter ending in January, according to a survey of financial analysts by First Call/Thomson Financial.
Cymer reported rising sales and net income in the latest quarter and is expected to generate $1.32 per share in profit for 2000 against earnings of 21 cents this year.
* PaineWebber Inc. analyst John Lazlo sees value in Micron Technology Inc. (MU; $81, up $5.13), the top U.S. maker of computer memory chips. Lazlo sees the company’s shares trading as high as $160 in 12 to 18 months, compared with its current $78.
“There could be a severe shortage of DRAM next year,” Lazlo said, referring to dynamic random access memory, Micron Technology’s core product line and the most popular type of computer memory chip. Such shortages will not be apparent for several months, he said.
While memory product prices have been erratic, they have firmed in recent months ahead of the holiday season. A wave of new computer purchases is also expected among corporate buyers next year as they upgrade to Microsoft Corp.’s new Windows 2000 operating system, due out in February, which analysts say requires at least 64 megabytes of DRAM.
Altera Corp. (ALTR; $51.31, up $2.25), a maker of programmable logic chips that are used to create a range of custom electronic devices, is undervalued relative to rival Xilinx Inc., Lazlo said. Wu recommended it as a stock to own and still be able to sleep at night, in contrast to Micron Technology, which he said was a commodity business with prices that tend to move frequently.
* Another way to play the semiconductor market is to look to the industry’s suppliers of equipment and tools, an area in which Applied Materials Inc., the dominant maker of chip manufacturing equipment, tends to garner most of the attention.
Kulicke & Soffa Industries Inc. (KLIC; $44.88, up $5.38), the world’s largest supplier of equipment used to assemble semiconductor components, could beat current earnings expectations, said Lawrence Borgman, an analyst at Josephthal & Co.
In a report issued Monday, Morgan Stanley Dean Witter & Co. said the company’s bookings are ahead of schedule, which could boost earnings for its December and March quarters.
