Dividend Investing | Technology

Applied Materials Hits Buy Signal at 90%

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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).

Data

Dividend fundamentals:

PriceDivFuture DivDiv Yld5Yr Div CAGRChowder (Yld+Gr)Div Payout Ratio
AMAT$33.42$0.80$0.820.0240.0270.0510.189

Basic earnings and other ratios:

P/EFuture P/EPEGEPSFuture EPSHist. ROR
AMAT9.948.030.563.264.240.111

Using the above data elements, I calculate fair value stock price using different estimation methodologies:

DivYld-MP/E-MPEG-MMorningstarGordonEPSPE-
M
MarketWtch-M
$32.80$42.15$5.57$49.00$9.75$31.82$60.04

Analysis

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.

Fair ValueConsider Buy
$44.28$43.40

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?Score
YesYesNoYesYesYes90%

Conclusion

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.