Two semiconductor names to buy

The latest Zacks Industry Rank Story is about the high tech of the high tech.

The seven-company strong Semiconductor Equipment & Wafer Fabrication industry is red hot. 

It is currently ranked #45 out of 265 Zacks Industries. In recent weeks, there have been 14 positive estimate revisions and just one negative revision, with the average positive revisions coming in at +22%. 

These are not chipmaker companies, per se, but the critical technology suppliers of the quantum breakthroughs behind dynamic semi chip production. In their own way of saying it, they provide the breakthrough that enables the breakthrough.

In comparison, the huge 36-company strong downstream Semiconductor Chip Industry recently ranked #20 out of 265. It has 16 positive revisions and just one negative revision, in recent weeks. The semi chip makers averaged positive revisions of 28%. 

It’s simple: An integrated value chain story. The stronger and faster growing downstream semi chip company revenue and earnings-per-share (EPS) growth gets the better key upstream semi chip equipment revenue and EPS growth gets.  

The 36 Zacks Ranked Chip companies keep this smaller seven-company backend Semi Equipment industry group busy these days. These types of chip technology businesses — and their shares — don’t look like they are going to lose momentum any time soon.  

Applied Materials (AMAT) is based in Santa Clara, Calif. It is the large cap in this sector. In 2015, the company had sales of $9.7 billion, did research and development worth $1.5 billion and held 1,341 patents. 

It has received Intel’s (INTC) Preferred Quality Supplier Award for the last five consecutive years. 

The $31 billion market cap company’s share price is just below $30. The forward price-earnings ratio is 16.81 and price/earnings to growth ratio is 1.07. 

Its estimated 2016 EPS is $1.75 a share.

This stock is a Zacks #2 “Buy” Rank and the Zacks VGM (value-growth-momentum) score is “A.”

Advanced Energy (AEIS) is headquartered in Fort Collins, Colo., and was founded in 1981. 

This stock is a Zacks #1 “Buy” Rank and the Zacks VGM score is “C.” The VGM score is lower here due to a higher valuation.

About the Author

John Blank, Zacks Research