Buying More Stock of This Semi-Cap Equipment Position

Symbol	Transaction Type	# Shares Traded	Recent Price $	Shares Owned After Trade	% Portfolio
AMAT	Buy	91	180	627	2.5

After you receive this Alert, we will buy 91 shares of Applied Materials AMAT at or near $180. Following the trade, AMAT shares will account for roughly 2.5% of the portfolio’s assets.

We have been waiting patiently on the sidelines for the right opportunity to pick up more shares of Applied Materials. Coming off the stock's pronounced move lower since mid-July we are stepping up to the plate, using that pullback as well as favorable chip demand comments as the impetus to do so.

Our play with Applied Materials has been multifaceted, including the rebound in global chip demand that should drive capacity utilization levels higher, fostering capital spending by foundries and other chip companies. The company also stands to benefit from global semiconductor re-shoring efforts in the U.S. — as well as in Japan and the eurozone. And while it’s not a business that many focus on, AMAT's Display equipment unit will benefit from increasing organic light-emitting diode display capacity. That same increase, spurred on by the expansion of applications also bodes well for our position in Universal Display OLED.

Management's Presentation

Wedbesday's presentation by AMAT management at the Citi investor conference was upbeat but didn’t really offer a lot of new information other than to reiterate that data center, smartphone, PC and IoT markets are strong. That supports our first thesis point mentioned above as do our comments earlier today about Foxconn, Ciena CIEN, Hewlett Packard Enterprise HPE, and others.

Management also commented that its services business, which is akin to other higher-margin after-market businesses at other equipment companies, is growing double-digits and is itself able to support AMAT's dividend. We certainly like that and it's good color for that 23% of Applied’s revenue stream.

Intel Concerns Are Largely Baked Into the Equation

One item that is looming out there is what Intel INTC decides to do as part of its restructuring. One possible outcome is that it spins out its foundry business, leaving it to compete with Taiwan Semi TSM and GlobalFoundries GFS.

Another possibility is Intel could scrap plans for a $32 billion chip plant in Germany. That would likely pose some headline risk for AMAT, but because that speculation has been making the rounds and with Intel a less than a 10% customer for AMAT, we would argue the bulk of any such outcome is largely priced into the shares. Capital spending comments from Samsung and TSM will be far more insightful and meaningful for AMAT and our shares.

Adjusting Our Price Target, Resetting Panic Point

As we make this buy, we’ll reduce our price target for AMAT to $220 from $240 and, because of today’s addition, reduce our panic point to $160 from $195. Potential catalysts that could lead us to revisit those changes are another investor conference management presentation by AMAT next week, TSM’s August and September revenue reports, and other comments about semi-cap capital spending prospects.

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(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to click on Closed Trade Gain/Loss and toggle the chart to sort by Purchase Date.)

At the time of publication, TheStreet Pro Portfolio was long AMAT.