Applied Materials (AMAT) is currently going through a challenging time. It recently announced a plan to layoff 6% to 9% of its workforce. The chip industry they supplied is also going through a transition as consumers migrate to tablets, smartphones, and other mobile devices from PC's. However, there are reasons to believe that the stock is close to a trough. Its hefty and growing dividend payouts are the primary reason it is a part of my income portfolio and I believe its growth prospects will improve in the months ahead.
Positives/Catalysts for Applied Materials:
- A couple of insiders have bought over $600,000 in new shares over the last six weeks.
- Barron's came out with a story this week that thesis was that arms merchants like AMAT, while challenged in the short term have brighter futures next year as the huge chipmakers need to increase capital budgets to continue to increase the performance of their chips.
- Another floor under the stock besides the dividend yield, is the solid technical support it has at these price levels (See Chart).
Applied Materials is the worldwide leader in the manufacturing of semiconductor capital equipment.
4 additional reasons AMAT is a solid pick up for income investors at $30 a share:
- AMAT yields 3.3% and has raised its dividend payouts by 50% over the past three years.
- The stock is selling at the very bottom of its five year valuation range based on P/B, P/S and P/CF.
- The company has more than sextupled operating cash flow in the last three years and the company is selling at less than 7 times OCF.
- S&P has its highest rating "Strong Buy" on AMAT with a $15 price target on the shares. In addition, the company has beat quarterly earnings estimates for six straight quarters.