Why Applied Materials, Inc. Shares Could Pop 35%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Applied Materials, (NASDAQ: AMAT  ) rallied 3% today after Jefferies initiated coverage on the chip equipment giant with a buy rating.

So what: Along with the bullish call, analyst Sundeep Bajikar planted a price target of $28 on the stock, representing about 36% worth of upside to yesterday's close. So while contrarian traders might be turned off by Applied's price strength over the past year, Bajikar's call could reflect a sense on Wall Street that its expansion prospects still aren't fully baked into the valuation.

Now what: According to Jefferies, Applied's risk/reward trade-off is rather attractive at this point. "We are confident the merger [with Tokyo Electron] would complete in 2H14, and translate into increased pricing power and scale benefits," Bajikar said. "We believe AMAT is best positioned among SemiCap players to benefit from a combination of 1) industry consolidation, 2) technology inflections, and 3) foundry competition. We expect higher margins and cash returns to drive multiple expansion." Applied shares hit a new 52-week high today and are trading at a P/E of 30, however, I'd hold out for a wider margin of safety before betting on those expectations. 

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Read/Post Comments (4) | Recommend This Article (2)

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  • Report this Comment On June 04, 2014, at 2:47 AM, fool2fool100 wrote:

    I have had this stock for over 15 years I believe that the merger will be good all around. 30% Does sound high, but very possible in the current environment. I will hold at this point, however, not buy any additional.

    If I did not already have a substantial position, however, I would would not hesitate to take on a small amount if I needed to get into this sector to broaden my diversification.

  • Report this Comment On June 04, 2014, at 2:54 AM, fool2fool100 wrote:

    (because I really like having more than one reason for buying a particular stock)

  • Report this Comment On June 04, 2014, at 5:36 AM, rambo130 wrote:

    How will delisting amat and toyoko electric and new stock listing as Holdco in the Neitherlands affect the stock price of the new stock valued in Euro's.? And I here that this is going to be a taxable event to U.S. citizens.

  • Report this Comment On June 22, 2014, at 6:31 PM, robleahey wrote:

    Folks, did any of you see the rather damning view of AMAT from Robert Castellano on June 10? Is it credible?

    All inputs welcome....

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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8/31/2015 3:59 PM
AMAT $16.09 Up +0.10 +0.59%
Applied Materials,… CAPS Rating: ****