Applied Materials Gains After Announcing $7.5 Billion Buyback

Applied Materials, Inc. (AMAT) shares rocketed 3.89% Monday after the Santa Clara chipmaker said it planned to undertake a new $7.5 billion share repurchase program.

The buyback, which represents around 7% of the company’s $109.5 billion market capitalization, supplements the $1.3 billion outstanding portion of its previous buyback program.

In other news, the company flagged that its Kokusai Electric share purchase agreement with KKR HKE Investment L.P. may fall through due to difficulty gaining regulatory approval in China. It told investors that if it fails to get the green light from Chinese authorities by March 26, it will terminate the deal and issue KKR a $154 million termination fee.

Through Monday’s close, Applied Materials stock yields 0.84% and has gained 214% over the past 12 months. Since the start of the year, the shares have added nearly 40%. From a valuation standpoint, the stock trades at 40% its five-year average forward earnings multiple of around 14 times.

Wall Street View

After the chipmaker reported better-than-expected Q4 results in mid-February, Cowen analyst Krish Sankar lifted the investment firm’s price target on Applied Materials to $140 from $120. He also maintained his ‘Overweight’ rating. Sankar believes the company’s product momentum, its market share gains, and operating margins should continue throughout the rest of 2021.

The sentiment also remains bullish elsewhere on Wall Street. The stock receives 21 ‘Buy’ ratings and four ‘Hold’ ratings. Currently, no brokerage research recommends selling the shares. Twelve-month price targets vary between $113 at the low end to $150 at the high end. The average target of $137 represents a 15% premium to Monday’s $119.33 closing price.

Technical Outlook and Trading Tactics

The Applied Materials share price has tracked steadily higher since late October. It finds a confluence of support from a multi-month uptrend line and the 50-day simple moving average (SMA). More recently, the price has oscillated within a symmetrical triangle as bulls and bears fight for control.

Active traders should consider buying if the stock breaks above the pattern’s upper trendline on above-average volume. As added confirmation, look for the breakout to coincide with a cross of the moving average convergence divergence (MACD) indicator above its signal line. In terms of trade management, place a stop-loss order somewhere below the triangle and target a move to around $143.50 (the height of the triangle added to the pattern’s top trendline).

AMAT Chart

For a look at today’s earnings schedule, check out our earnings calendar.

Three Chip Stocks Hitting New Highs

PHLX Semiconductor Index has posted fabulous returns so far in 2020, lifting more 40% since the last trading day of 2019. Sadly, many well-known names topped out with broad benchmarks in September and are working off overbought technical conditions through trading ranges or lower prices. As an alternative, let’s look at a smaller group that’s hitting new highs as we wrap up the month of November, well-positioned for even higher prices between now into year’s end.

A number of 2020 sector leaders have taken market share from Intel Corp. (INTC), which has fallen from grace after a series of self-inflicted wounds. The Dow component has lost 21% so far this year, in stark contrast with the broad-based SOX index, piling up misfires and delays driven by weak management and poor execution. The old school behemoth has lost significant business to more nimble rivals and could descend into oblivion in 2021.

Micron Technology

Micron Technology Inc. (MU) makes memory chips. The stock has booked a respectable 19% return this year but the rally off the first quarter low tells an even more bullish tale, doubling in price and lifting into a critical test at May 2018’s high in the mid-60s. A breakout could presage outstanding 2021 upside because the advance will face little resistance into the all-time high in the 90s, posted at the height of the Internet bubble in 2000.

Applied Materials

Applied Materials Inc. (AMAT) makes semiconductor equipment for mainstream and leading-edge fabrication and is benefiting from the developing technology war with China.  The stock has risen 36% so far in 2020 and just completed a massive cup and handle breakout above the 2000 high in the mid-50s. In addition, it’s gained more than 40% since the end of October, capitulating on strong Q4 2020 top and bottom line results.

On Semiconductor

On Semiconductor Corp. (ON) makes chips for power generation, electric vehicles, cloud computing, and industrial production. It’s lesser known than other chip stocks in this review but has also benefited from Intel’s misfortunes, with accelerating sales surprising many analysts. The stock has just broken out above the March 2018 peak in the mid-20s and is trading at an all-time high. It’s also more than tripled in price off the March 2020 low at 8.17.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.