Investment in Applied Materials Pays Off

The Kelly Letter invested in Applied Materials (AMAT) a while back for several reasons.

It's the leader in semiconductor manufacturing equipment, a great business base but fraught with boom-bust cycles. To make its returns steadier, the company shrewdly started moving into flat panel displays and then solar. Now, with a solid stronghold in each, it has a fantastic portfolio of business.

The solar division is already earning its keep. AMAT gained 7.6% Tuesday on news that the company had received a $1.9 billion order to install 15 solar equipment production lines in June. That's the biggest order in its history. The equipment should be able to produce solar electricity on the scale of gigawatts per year.

The Financial Times wrote Tuesday night: "Analysts said the deal for the world's largest supplier of equipment for the semiconductor industry was about five times bigger than any order it had ever received in its core business."

AMAT's price chart is looking good, too. The stock bottomed at $16.13 on Jan. 11, and has now marched 26% higher since then. It closed Tuesday at $20.32 in what looks to be an attempt to break through the $20-$21 resistance zone. Doing so would put the stock at its highest since it broke through that same zone as support at the end of October. The last time it broke through that zone heading up was in July, when it ran to $23 by early August, then broke down.

Above $23, AMAT doesn't hit resistance until about $27. Morningstar puts AMAT's fair value at $25 and suggests selling at $32.50.