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Daily Alert - 6/17/20

Nine analysts have increased their earnings estimates for this semiconductor manufacturer in the past 30 days.

Nine analysts have increased their earnings estimates for this semiconductor manufacturer in the past 30 days.

Applied Materials, Inc. (AMAT)
From DRIP Investor

The semiconductor sector has a number of attractive players. One of my favorites is Applied Materials. The company is a leading provider of semiconductor manufacturing equipment. With technology invading virtually every part of our life, the demand for semiconductors to drive that technology will increase.

Applied Materials is coming off a decent first quarter. And while the coronavirus will impact results in the near term, the company should still post decent growth in 2020—something that will likely be a rare occurrence for many companies.

The stock is down 21% from its 52-week high and offers a buying opportunity for investors wanting to add to their technology holdings.

Applied Materials calls itself “the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world.” While that seems like a bold statement, the company backs it up with numbers that are fairly impressive. The firm will likely do more than $16.5 billion in revenue this year, up from $14.6 billion in 2019. Per-share profits should grow sharply to $3.78. The fi rm started the year out in fairly strong fashion. First-quarter revenues rose 12% to nearly $4 billion. Per share profits of $0.89 were up 27% and matched analysts’ estimates. Semiconductor Systems revenue rose more than 17% in the quarter. Applied Global Services saw revenue gains of 3%, while Display and Adjacent Markets posted a revenue increase of nearly 5%. During the quarter, the company returned $392 million to shareholders, including $199 million in share repurchases and $193 million in dividends.

In the near term, Covid-19 will have some impact on results. Stay-at-home policies in some states could impact supplier operations, and the economic downturn may affect investment decisions in certain -industries. Still, Applied Materials pointed out that despite a fluid situation, demand for the company’s semiconductor equipment and services “remains robust.”

Applied Materials trades at less than 15 times 2020 earnings estimates. That seems like a reasonable multiple to pay for a company at the heart of the cutting edge of semiconductor technology. That is also a very reasonable P-E ratio relative to other technology stocks.

The company’s dividend has more than doubled since 2017 and was recently raised nearly 5% to a quarterly rate of $0.22 per share. While that may not seem especially high, keep in mind that the dividend yield exceeds the interest rate on a 30-year Treasury note. Applied Materials has traded in the $60s in each of the last four years and should return to that level before year-end.

Please note Applied Materials is part of Computershare’s online-only DirectStock program. Minimum initial investment is $25, though the minimum is reduced to $10 if an individual sets up automatic investments via monthly debit of a bank account. For more information on the plan, visit Computershare at And of course, the stock is available for purchase via any brokerage firm.

Charles B. Carlson, CFA, DRIP Investor,, 800-233-5922, June 2020