Applied Materials (AMAT) has been on a strong uptrend since its last earnings report in November. The stock is only 4% off its high and finding support at its 21-day exponential moving average. But does that make AMAT stock a buy now?
Before the coronavirus stock market crash, semiconductor stocks were leading the market. And they just capped a solid 2020, too. The Nasdaq confirmed a new uptrend on April 6 with a follow-through day. That fueled a 44% gain for the Nasdaq in 2020. The Van Eck Vectors Semiconductor ETF (SMH) performed even better, up 54%.
Applied Materials on Nov. 12 reported a 56% surge in quarterly profit. Revenue jumped 25% to $4.69 billion, marking the fourth straight quarter of accelerating top-line growth. The results were impressive after a very good earnings report in August that showed bottom-line growth of 43% and top-line growth of 23%.
Guidance for the for the current was also bullish. Based on the midpoint of its guidance, the company expects adjusted profit of $1.26 a share on sales of $4.95 billion. That’s pretty much in-line with the Zacks consensus estimate of $1.27 a share on sales of $4.95 billion.
The company’s next earnings report is due Feb. 18 after the close.
Fiscal 2021 earnings are expected to rise 22% from 2020, with growth decelerating in 2022, up 9%.
AMAT Stock: New Markets
“Applied Materials closed fiscal 2020 with record quarterly performance as demand for our semiconductor systems and services remains very strong,” said Gary Dickerson, president and CEO. “Our future opportunities have never looked better and, as powerful technology trends take shape, we are uniquely positioned to accelerate our customers’ roadmaps and outperform our markets.”
Earlier this year, Dickerson said the chip industry is moving away from an era when smartphones drove the majority of semiconductor investments. He said that recent declines in memory chip spending should be offset by increased spending in artificial intelligence, big data and cloud infrastructure. Continued strength in Internet of Things (IoT) and automotive technology markets should also help.
In its latest fiscal year, Applied Material delivered strong annual return on equity of 40.9%. Annual pretax margin was also solid at 25.3%.
Applied Materials’ Composite Rating of 99 ranks it No. 1 in IBD’s chip-equipment group, according to IBD Stock Checkup. Leadership is broad in the group. Other top-rated stocks include Kulicke & Sofa (KLIC), Ultra Clean Holdings (UCTT), ASML (ASML), Advanced Energy Industries (AEIS), Nova Measuring Instruments (NVMI)
With the Stock Checkup, it’s easy to quickly identify the fundamental and technical leaders in a group.
AMAT Stock: Buy Or Sell?
Chip-equipment stocks continue to provide market leadership
In early July, AMAT stock cleared a cup-with-handle base with a 62.43 entry. Add 10 cents to the stock’s June 19 intraday high to get the buy point. A pullback after that gave an alternate entry of 65.43. After clearing that entry, AMAT stock rallied to a high of 69.90.
Headed into its latest earnings report, AMAT stock was just below a 70 buy point, found by adding 10 cents to AMAT’s August 14 intraday high of 69.90. The gain from the breakout hit 8.5% on Nov. 9, but AMAT stock closed well of highs that day and eventually fell back to the buy point. AMAT stock started a powerful rally from there.
AMAT stock started to drift lower in December and came close to first test of its 10-week moving average. It didn’t quite touch the key support level, but AMAT stock jumped nearly 11% in the week ended Jan. 8. The strong gain pushed the stock past a three-weeks-tight entry of 90.70.
Holding Above Key Support Level
AMAT stock continues to hold nicely above its 10-week line, but it’s not in a buy zone now. If it comes down to its 10-week line again and finds support, that would put AMAT stock in another buy zone. Or, it could it could form a new base from here.
The stock’s relative strength line continues to hold near highs because the stock has been outperforming the S&P 500 recently. A stock’s relative strength line, found in IBD daily and weekly charts, compares a stock’s price performance against the S&P 500. If the stock is outperforming the S&P 500, the RS line will be trending nicely higher. And vice versa.
Follow Ken Shreve on Twitter @IBD_KShreve for more stock market analysis and insight.
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