For Immediate Release
Chicago, IL – June 2, 2023 – Zacks Equity Research shares Nova (
NVMI Quick Quote NVMI - Free Report) as the Bull of the Day and Micron Technology ( MU Quick Quote MU - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Graco Inc. ( GGG Quick Quote GGG - Free Report) , Lifetime Brands, Inc. ( LCUT Quick Quote LCUT - Free Report) and American International Group, Inc. ( AIG Quick Quote AIG - Free Report) .
Here is a synopsis of all five stocks.
Nova is a $3 billion provider of technology for semiconductor manufacture that makes integrated hardware and software tools and systems for the necessary "purity & precision" of silicon engineering. Here's how the company describes their mission... Nova's advanced multidisciplinary dimensional metrology technologies combine complex opto-mechanical hardware with advanced optics and cutting-edge algorithms to continuously innovate for effective process control throughout the semiconductor fabrication life cycle. After a growth lull, Nova is back to a Zacks #1 Rank as revenues and profits have turned around since their Q1 report in early May. NOVA LTD, formerly known as NOVA MEASURING, is based in REHOVOT, Israel. Quarter Details and Stock Reaction in the AI Boom
Nova delivered Q1 earnings of $1.23 per share, beating the Zacks Consensus Estimate of $1.04 per share by 18%. This compares to earnings of $1.30 per share a year ago. These figures are adjusted for non-recurring items.
A quarter ago, it was expected that this maker of monitoring systems used in chip manufacturing would post earnings of $1.25 per share when it actually produced earnings of $1.28, delivering a surprise of 2.40%. Over the last four quarters, the company has surpassed consensus EPS estimates four times. Nova, which belongs to the Zacks Electronics - Semiconductors industry, posted revenues of $132.19 million for the quarter ended March 2023, surpassing the Zacks Consensus Estimate by 1.69%. This compares to year-ago revenues of $133.96 million. The company has topped consensus revenue estimates two times over the last four quarters. Jefferies analyst Vedvati Shrotre initiated coverage of Nova with a Buy rating and $115 price target in April as part of a broader research note on Semi Cap Equipment. The firm favors the company as an "optical metrology pure-play" and a Foundry/Logic beneficiary, forecasting its revenues to grow at a CAGR of 8% over the next 5 years. As a pure front-end play, Nova has the highest margins relative to Onto and Camtek, the analyst told investors in a research note. Where Does NVMI Fit In the Semi/AI Ecology?
Metrology is the science of measurement and nowhere is precision more needed than in the "nanosphere" of chip manufacture. A nanometer (nm) is one billionth of a meter, and this is the distance of measurement for engineering transistors onto an integrated circuit (IC) board or card.
Chips have been plunging below 10nm for the past few years as Moore's Law gets new life from GPU pioneers like NVIDIA. For comparison, the coronavirus is about 50nm. I explained some of this in my Top Stock Picks video about Nova on Tuesday, where I also suggested that this little engineer of Semi precision and purity may be an acquisition target for larger wafer fabrication equipment (WFE) companies like Applied Materials, Lam Research or KLA. For less than $10 billion, any of these $50-100 billion Semi engineers could "bolt-on" Nova and secure their dominance in precision purity manufacturing. You Can't Spell Innovation Sans NOVA
Be sure to watch the video I made Tuesday (
link here) to see inside the world of precision Semi manufacture. Until you do, here was a recent press release from NOVA that highlights their expertise... Rehovot, Israel, December 20, 2022 – Nova (Nasdaq: NVMI) announced today that a leading global logic manufacturer recently selected Nova ELIPSON™ for next-generation integrated circuit (IC) development. Nova ELIPSON™ was chosen for its ability to perform in-die characterization of stress, strain, and defectivity in next-generation devices, rapidly and with unparalleled sensitivity. The solution utilizes advanced Raman spectroscopy technology to extract materials properties of in-die structures, by fast and non-destructive means. The platform has consistently proven its ability to solve a wide range of materials metrology challenges in various segments and steps. “This selection by one of the world’s leading semiconductor logic manufacturers demonstrates the growing value of Nova’s innovative materials metrology portfolio,” stated Eitan Oppenhaim, Nova’s president and CEO. “The increasing complexity of device architecture demands solutions that push the envelope and address the unique challenges our customers are facing. In this complex process fabrication environment, Nova’s unique materials portfolio is becoming critical to the successful manufacturing of next-generation devices.” This is one example of how sales growth is returning for this small player in the $10 trillion market for AI. Disclosure: I own shares of NVMI, NVDA, and CDNS for the Zacks TAZR Trader portfolio. Micron Technology ( ) became a Zacks #5 Rank this spring as EPS estimates collapsed for the current fiscal year, which ends in August, from a loss of $2.28 to a loss of $4.71. MU
That earnings drawdown would represent a 156% annual decline for the "megalodon of memory" if it unfolds as projected.
What many investors don't realize is how integral Micron memory innovations are to the AI revolution across multiple platforms including mobile, autos, medicine, robotics and the datacenter.
Besides the traditional volatility of commoditized memory chips and supply chain constraints, which delivered a 189% EPS miss for the February quarter, Micron has been dealing with higher pressure from China.
Sales restrictions on Micron's products in China can be seen as a retaliatory action by the red state against the U.S. government's increasing restrictions on Chinese access to advanced semiconductor technology.
Here's an excerpt from our May 22 reporting...
Micron Faces Restrictions for Selling Products in China
Micron has been imposed with a trade restriction by the Cyberspace Administration of China on selling its products in key domestic industries on national security concerns. In a statement, China’s cybersecurity regulator revealed that the U.S.-based memory chipmaker has failed to pass a cybersecurity review, which it had initiated in late March 2023.
The development can be seen as a retaliatory action by the Chinese government against the U.S. government’s increasing restrictions on Chinese access to critical and more advanced semiconductor technology.
In October 2022, the United States imposed an export ban on certain advanced chips that are used in data centers for artificial intelligence, data analytics and computing applications. Over the past few months, the Netherlands and Japan also joined the United States to restrict China from making advanced chips.
The tit-for-tat actions could jeopardize Micron’s prospects, which are already facing the brunt of the weak demand for its memory chips. Chip sales in China make up approximately 11% of Micron’s total revenues.
In late March, Micron reported weaker-than-expected financial results in the second quarter of fiscal 2023. The company reported a non-GAAP loss of $1.91 per share, which was significantly higher than the Zacks Consensus Estimate of a loss of 67 cents. The bottom line compared unfavorably with the prior-year quarter’s earnings of $2.14 per share.
The quarterly revenues of Micron plunged 53% year over year to $3.69 billion, which missed the consensus mark of $3.76 billion. The rapidly weakening consumer demand and substantial customer inventory adjustments across end markets amid macroeconomic uncertainty were the main reasons behind the dismal quarterly performance.
The memory chip maker has offices in Shanghai and Shenzhen and a chip packaging facility in the city of Xian. In early 2022, Micron announced that it would shut down DRAM design operations at its Shanghai facility by the end of the year. The move was seen as a strategic shift from the manufacturing of chips back to the United States amid mounting trade tensions between the United States and China.
But MU is not the only semiconductor company that has been impacted by the tech war between the world’s two largest economies.
On Aug 31, 2022, NVIDIA disclosed that the U.S. government informed it on Aug 26 about imposing a new licensing requirement, effective immediately, for its A100, A100X and forthcoming H100 integrated circuit sales in China and Russia. The government also banned NVIDIA from exporting DGX or any other systems that incorporate A100 or H100 integrated circuits.
The new licensing requirements will also be implied for any future chip designs developed by NVIDIA that have a threshold greater than or equivalent to A100. Additionally, any systems developed in the future incorporating the aforementioned types and thresholds will fall under export restrictions.
Bottom line: MU appears a strong value near $65 as it trades under 4X forward sales projections of $20 billion. We just need to see how this cycle plays out with new pressure from China. The Zacks Rank will let you know. Additional content: 3 Stocks to Buy for the Long Term
Most investors have heard and read about Warren Buffett and his successful strategy of investing for the long term. And most also know how unnerving it gets when your holdings drop in value even as you patiently look to the horizon. Therefore, no matter how rewarding it may ultimately turn out to be, this game is not for everyone.
But just suppose you were one of these patient folks: how should you go about doing this? What are the basic steps to follow or things to keep in mind?
First, do your research. This includes looking at the company's financial statements, reading analyst reports and following news about the company. The goal is to have a clear understanding about the company's business model, industry position, financial performance, competitive advantages and growth prospects.
Second, evaluate the financial health. Examine the company's financial statements, checking for things like revenue growth, profitability, debt levels and cash flow. Look for consistent revenue and earnings growth, a healthy balance sheet and strong cash flow generation.
Third, consider industry trends. Analyze the industry's growth potential, competitive landscape and any potential risks or challenges. Look for industries with favorable long-term prospects and companies that are well-positioned within those industries.
Fourth, assess the stock's valuation relative to its intrinsic value. You could use valuation metrics like price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, or discounted cash flow (DCF) analysis. Look for stocks that are trading at a reasonable or discounted valuation compared to their potential.
Fifth, diversify. The importance of a diverse portfolio can't be overstressed. Your portfolio should be balanced across growth profiles and risk profiles; between steady, mature industries and fast growing industries. Diversification helps mitigate the impact of any individual stock's performance on your overall portfolio.
Sixth, rebalance your portfolio. Just because you’re holding stocks for the long term doesn’t mean that you stop monitoring and reviewing. You must make adjustments when things play out differently from what you were expecting. Also, you may need to sell a few stocks for your cash needs and compensate with other purchases. It’s important to follow closely all developments related to the stocks you’re holding. Rebalancing your portfolio helps you stay in touch with your long-term investment objectives.
Finally, don't panic-sell. The stock market is volatile and there will be times when the market takes a downturn. It's important to stay calm. If you sell your stocks when the market is down, you're likely to lock in your losses. Patience pays, as long as the long-term investment story remains.
Here’s a quick formula to evaluate long-term holdings:
Using the Zacks stock ranking system, identify #1 (Strong Buy) rated stocks. Check their performance over the last few years. Ideally, you should be looking at revenue growth, profitability and cash flow. But a good average earnings growth rate (say at least 10%) could serve as a proxy. Add to this the analyst- expected growth rate for the next 3-5 years (if the growth rate is at least same as in the last 3-5 years, it’s an indication of steady growth for a prolonged period of time). So we can keep this too at a minimum of 10%. If such a company also pays a dividend, all the better.
One stock that passes all these tests is
Graco Inc. This provider of equipment and systems used to measure, move, control, spray and dispense fluid and powder materials supplies industrial manufacturers.
The reason it looks so good now is that it has a five-year historical record of 10.6% earnings growth. Analysts expect the company to grow its earnings by 10% on average in the next 3-5 years, And in the current year, it is expected to grow 16.2%. It also pays a small dividend that yields 1.23%.
Another stock on this list is
Lifetime Brands, Inc., which is known for its kitchenware, tableware and other household products.
The company has seen earnings growth of 54.9% in the last five years and is expected to grow at 14.0% over the next five years. This year alone it will grow 93.6%. To top it all, its dividend yields a very decent 3.47%.
American International Group, Inc., which offers insurance products for commercial, institutional and individual customers primarily in North America, has grown 30.5% in the last five years and is expected to grow 10.0% in the next five. It is currently expected to grow 44.6% this year. Its dividend yields 2.42%.
All of these stocks carry a Zacks #1 rank, indicating upside potential even in the near term.
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