I haven't written about Lam Research (LRCX - Free Report) as the Bull of the Day since June and a lot has happened since then.
First, they've reported two "beat-and-raise" quarters since then and shares rallied from below $160 up above $210.
Since Lam was 1 of 5 members of my $200 Club, I call that mission accomplished.
And the strength for this maker of wafer fabrication equipment (WFE) for the semiconductor industry was part of a very strong technology sector that was driving record sales and earnings growth for many companies.
The second thing that's happened is a short-term top in the over-bought semis group that brought Lam down below $180 this week.
As one of the leaders of the chip gold rush on the way up, along with NVIDIA (NVDA - Free Report) , Lam was due to lead the group lower too.
In fact, on November 28 after some bearish research notes from Morgan Stanley semiconductor analysts, I told my TAZR Trader members that the Philly SOX Index could drop another 6.5% to its 50-day moving average.
The next day, the SOX fell 5% and Lam dropped from $213 to under $195. On that day we bought more NVDA, also near $195.
But I decided to wait on the Lam after reading some of the commentary from the Morgan Stanley analysts about their downgraded look on several companies. Here's a good summary of what they believed...
"We think now is the time to reduce exposure to Nand (flash memory) and Asian semiconductor names as the industry has benefited from sizable demand tailwinds and unprecedented pricing power, which we see reversing soon," analyst Shawn Kim wrote. "Given our view of the cycle, we cannot recommend the sector until the market recognizes mounting pressure on Nand prices and slowing logic-chip growth momentum in the near term."
Kim's colleague Katy Hubert specifically downgraded Western Digital (WDC) to equal weight from overweight, based on her expectation that prices of Nand flash-memory chips are peaking and could fall as much as 15%.
This in turn impacted Lam because they make the equipment that supplies WDC and other flash memory makers like Micron (MU - Free Report) .
And by December 4, Lam came into my buy zone near $180 and we picked up another starter position because I don't believe the strength in technology and semiconductor markets is over.
Strong Growth Estimates Persist in a Powerful Cycle
To wit, none of the estimates for Lam have softened the least in the past week. In the midst of its Q2 for fiscal year 2018 (ending in June), Lam is projected to see 28.8% top line growth to $10.32 billion. And the bottom line is expected to deliver 47.7% growth.
This year's $14.75 EPS puts the stock's P/E under 13X, which is about in line with the peer group which includes Applied Materials (AMAT - Free Report) .
So what makes me believe that strong double-digit sales and earnings growth will meet analyst forecasts and be maintained into next year?
For me, it's all about what I call the "tech super cycle" where new innovation-based industries and companies are being born every year that are in turn giving birth to others.
For instance, did anyone predict 5 years ago that NVIDIA would explode from a chip-maker for gaming with revenues of $4.3 billion to a provider of AI technology for driver-less cars, data centers, scientific super computers, machine learning robotics, and cryptocurrency mining that is poised to rake in $9.5 billion this year?
Of course not and that's why you could still buy the stock under $30 when I first wrote about it as a Zacks #1 Rank in January of 2016. Today I'm buying NVDA shares at nearly 50X forward EPS because they are growing their cloud/data center business at over 50% per year and this is expected to continue for 3 more years.
That is the power of the "exponential technology" imperative I learned about from futurists like Ray Kurzweil of Google and Peter Diamandis of the X-Prize Foundation.
Want a glimpse into the next 5 years of Cooker's Tech Super Cycle?
How about this research from Bank of America: Augmented Reality companies realized only $5 billion in sales in 2016 for this revolutionary technology, but the engagement and R&D is expected to grow at over 125% per year to hit $160 billion in 2020.
Who will drive this growth and innovation? Hundreds of startups you've never heard of, fueled by "advance guard" R&D from Google, Samsung, Microsoft, and Apple (AAPL - Free Report) . In my article on the $200 Club, I also reference my August podcast Why the Apple Ecosphere Could Own Augmented Reality.
And the companies making new semiconductor technologies for these AI/AR/VR industries will be customers of Lam Research.
On Thursday, another analyst caught my drift and boosted the Lam. Nomura upgraded shares to Buy from a neutral rating, assigning a $215 price target.
But Lam's average Buy rating/target price among analysts is already $215 because several big investment banks have these targets on this growth...
Royal Bank of Canada: $225
Deutsche Bank: $230
Stifel Nicolaus: $235
Credit Suisse: $245
Bank of America: $270
Bank of America also has a $250 PT on NVDA. And I'm with BofA on the exponential growth of AR, VR, and AI.
Disclosure: I own shares of LRCX, NVDA, and AAPL for the Zacks TAZR Trader portfolio.
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