Applied Materials, Inc. is in a strong buy position for me when looking at what I feel is current fair price per share versus current market price per share. I am not analyzing current market conditions very much, including the lagging semiconductor sector, etc and I do have a pretty good feeling that most of those items are major factors in suppressing AMAT’s stock price. However, if you are believer in the company and it’s long term prospects, take a look at my analysis below on why I feel AMAT is a strong value play right now and a good long-term buy.
(Data as of 10/12/2018) – My methodology for calculating a fair value price focuses on a mix of dividend fundamentals, earnings, and both past and future growth estimates. I also factor in some external fair price estimates to balance my own. Finally, I come up with a 0-100% score on whether it’s a buy (closer to 100%, the stronger the buy signal).
5Yr Div CAGR
Div Payout Ratio
Basic earnings and other ratios:
Using the above data elements, I calculate fair value stock price using different estimation methodologies:
1. Aggregate fair value stock price. Using the various pricing methods above, I calculated an aggregate fair value price (shown below). Current market price of approx. $33/sh is well below what I estimate fair value to be. Stock is priced to buy.
2. Buy signals. I look at how well the stock fairs against a battery of various quality metrics (shown below). If the aggregate score of those metrics is above 75% (range is 0-100), I consider the company safe to invest in (if the price is right). AMAT’s current buy signal score is 90%.
Priced to buy?
Div Payout Ratio?
Chowder < 0.12?
EPS 5yr positive?
Sales 3yr? positive?
P/E < 20?
So, with an aggregate buy signal score of 90% and a fair value stock price estimate above the current market price, I would conclude that AMAT is a good value for the long-term investor and it’s a great time to add some shares.
In the past few months, Applied Materials (AMAT) has fallen a ton. I hold AMAT in my portfolio and figure it’s time to see if I should add more or start considering a stage pull-out. I will be performing my custom stock-value analysis on AMAT shortly and post my findings soon. In the meantime, I’ve summarized some market commentary.
The Motley Fool has important items to point out, such as whether we’re at a bottom or not:
“…the company’s profits have historically been tied to cyclical swings in the memory chip and data storage markets — so investors shouldn’t rely on that seemingly low multiple as an indication that the stock is near a bottom.” 
…and some weakness:
“…semiconductor systems segment accounted for 61% of the company’s sales in its July quarter … a downturn for the memory chip market is likely to have a significant, negative impact on performance…” 
“Comments from Micron Technology’s chief financial officer indicating continued declines for NAND memory prices and a bearish note on the outlook for the memory-chip industry from Morgan Stanley analyst Shawn Kim” 
A recent SA article (see source links at bottom) has some positive pointers for those looking to add some shares:
AMAT 27.7% pullback since May (down 37.4% since it hit high of $62.40 in March).
Growth prospects for 2019 and beyond remain excellent.