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Day 261: Applied Materials

Mother's Little Helper portfolio was UP today +2,962.08 (+0.37%).

Overall GAIN YTD: +$224,534.21 (+38.45%).

According to CNN Money our benchmark index, the S&P 500 is up +11.59% Year To Date.

The portfolio was up today +0.37% on some big gains from a broad group of companies. Often our rallies occur around an industry but today included Dynavax (healthcare), Xilinx (semiconductors), Copart (automotive), (stamps), Thor (RV's), Citrix Systems (enterprise software), and Applied Materials, a company that makes the equipment that makes computer chips. That last one is really encouraging. When the chip equipment makers are doing well, the whole economy, globally is doing well.

Applied Materials, while not in our portfolio is an interesting company. One of the reasons it didn't make the portfolio is that over the past year its been a volatile stock with price swings between $27-$47. However, right now the company is looking like a good buy. AMAT closed today at $46.12 leaving it in a no mans land between its previous high and current support. Current median analyst consensus estimates for the next 12 months are targeting $55/share, with some calling for $59/share. Personally I'd be more comfortable with a projection of $50-$52/share. $52 is roughly 13% above current prices plus you get a 0.40 cent dividend, nearly 1%. If I was looking to buy AMAT I might buy a few shares now and hope for share prices to pull back between $43-$45. For instance, if you wanted to own 100 shares of Applied Materials, you might buy 25 shares now, wait for a pull back below your original cost and buy 25 more. $43ish is probably the floor, so don't get too greedy. While I would consider AMAT a long term holding for several years, expect the stock to have big swings as the demand for semiconductors goes in up and down cycles.

  • AMAT operates about even with its peer median.

  • Price/Book ratio of (5.59).

  • Investors have relatively low growth expectations which is keeping stock price down.

  • AMAT has relatively high returns.

  • AMAT net profit margins and high asset efficiency give it some operating leverage that iots competitors might not share.

  • Year-on-year revenues and earnings are better than the median among its peer group.

  • AMAT return on assets over the past 5 years is very consistent and suggest that its high operating returns can continue.

  • AMAT revenue growth has been above its peers, yet the stock's P/E ratio is less than its peers. At first glance this might suggest a discount, but might also suggest that the company's earnings are peaking and investors expect a decline in its growth.

  • R&D expenses could be higher.

Supporting Cancer Research & Suicide Prevention:

I will be riding to raise funds and awareness for men's health issues as part of the Distinguished Gentlemen's Ride, a Movember Foundation event. More information is at the link below.

Stay Invested

Clay Baker

Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, THO, TWX, VEEV, VZ, XLNX, XOM

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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