3 Big Movers: NVIDIA, Applied Materials, and Agilent Technologies

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

U.S. stocks had a good week, with the benchmark S&P 500 gaining 2.3%, which puts it almost back at breakeven for the year. The narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) also gained 2.3%. The earnings season rolls on as technology large-caps Applied Materials (NASDAQ: AMAT  ) and NVIDIA (NASDAQ: NVDA  ) were among the best performers in the S&P 500, while Agilent Technologies (NYSE: TWTR  ) was the next-to-worst performer in the index.

Earnings drove outperformance for chipmaker NVIDIA, which was the second-best performing stock in the S&P 500 this week (+12.9%). On Wednesday, the company reported fiscal fourth-quarter earnings-per-share of $0.32 (excluding items), beating the $0.18 Wall Street consensus estimate. Revenue rose 3% year on year to $1.14 billion -- also above expectations. Looking ahead, the company provided revenue guidance for the current quarter of $1.05 billion, which topped analysts' $1.0 billion forecast, and said it expects gross margin of 54.5% (it was 54.1% in the fourth quarter.)

CEO Jen-Hsun Huang remarked that results were boosted by PC gaming, "capping an outstanding year for our GPU [graphics processing unit] business." Sales of GPU chips rose 8% from the prior quarter, and 14% year-on-year, to $947 million. Susquehanna's Chris Caso wrote: "We believe this strength was driven by unexpectedly limited supply of competing AMD GPUs which drove business to NVDA."

NVIDIA is trying to reduce its dependence on PC graphics -- a wise strategy, given the secular transformation the PC industry is undergoing. Nevertheless, at 16.5 times the next 12 months' earnings-per-share estimate, these shares aren't something I can get too excited about -- I'd prefer a greater margin of safety for a cyclical business, the fortunes of which are so closely tied to the PC industry.

Moving upstream, semiconductor equipment manufacturer Applied Materials' stock (+10.4% this week) also got a boost from its quarterly earnings announcement. Fiscal first-quarter (adjusted) earnings per share of $0.23 was a penny ahead of analysts' expectations, while revenue of $2.19 billion beat the $2.13 billion consensus estimate.

The company's guidance for the first quarter of $0.25 to $0.29 for earnings per share and 3% to 10% sequential revenue growth was in line with Wall Street's expectations. However, investors appear to have been cheered by the company's broader outlook. CEO Gary Dickerson told investors and analysts on a conference call on Wednesday: "The foundries remain the biggest component of wafer fabrication equipment as they ramp new factories to fulfill demand for advanced mobile chips. ... We expect foundry investment to grow 10 percent to 20 percent this year."

At 16.6 times the next 12 months' earnings-per-share estimate, Applied Materials' shares sport nearly the same multiple as those of NVIDIA -- and I'd make the same comment: There isn't enough margin of safety in that multiple for me to find the stock attractive.

Like Applied Materials, instrument maker Agilent also beat the consensus earnings-per-share estimate by a penny in its fiscal first quarter, but that didn't save the stock (-7% on the week) as the company lowered its guidance range for the fiscal year 2014 from $3.03-$3.33 to $2.96-$3.16. (Analysts had been forecasting $3.19.)

Broker Jefferies reiterated its "buy" rating, writing: "We expect shares of A to open lower on the recalibrated FY14 outlook, though such a pullback would offer a compelling entry point ahead of accelerating 2H14 trends & a value-enhancing spin." As a contrarian, I'd like to agree ... but I don't. As far as I'm concerned, Friday's 8% decline in the share price doesn't put the stock in compelling territory; Agilent shares are valued at 17.3 times the next 12 months' earnings-per-share estimate.

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