Chip fab, tool and test

As I consider whether to add a third (and even a fourth) company in this field (I already have full, 2% of overall pf value book-cost holdings in AMAT and LRCX), the question which hangs over them, and why they are so unusually cheap, seems to be their extreme, known susceptibility to the business cycle. I suspect that may be partially out of date.

In order to do the calcs., I took an average of the 5-year histories so as to be cautious. I know the time will come when they could fall far and fast but even so I am impressed by their value: orchids in a semi-desert (!). Or does the value still not reflect the extreme danger and they remain obvious value traps for the unwary at the top of the cycle? That’s what the market’s saying. Views welcome.

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A lot of the numbers make them look cheap, but both have a high Shiller PE ratio and current PE ratio. The Shiller ratio uses the average of 10 years of earnings.

I forgot to ask - how does KLAC (KLA-Tencor) look to you? They came close to acquiring Lam not too long ago.

For some reason unknown, it has never come through my initial sorting screen unlike others and so I have not looked at it.

I think the advances in technology leave the CAPE not meaningful, nor should it ever be applied to individual companies. Even the most stalwart of blue chips. Its usefulness as one indicator of several is important, but I think probably only when applied to national indexes.

Hi Strelna,

I would recommend following their future plans as far as where their products are going to be used.
IoT is growing, pc’s are slowing, data center servers are on a tear, cell phones are growing in the Far
East, etc. Most that are doing well seem to have carved out a niche that doesn’t involve too much
dependence on pc’s for instance. JMO.

And the pricing … Lam, for example, keeps doing well with decent growth but the stock already tripled
in the last 2 years. They keep popping up in my screening and I owned them for a short time, but like MU,
they still make chips for one-time sells. Selling MU was a good move. LRCX, I wish I would have kept, but
would probably be ready to sell about now, if I had. If you find enough reasons to start at this late
date, please let me know. :slight_smile:

Dan