The past few years have been a wild ride for Applied Materials (NASDAQ:AMAT) investors.

Semiconductor and display manufacturing can be a volatile business, and Applied's basic materials and process engineering services are at the mercy of chip and display makers that use them. A slowdown in tech hardware started in 2018, sending shares into a tailspin and halving the value of the company -- only for signs of a rebound in the industry to send shares all the way back up and then some in the past year.

After all is said and done, the roller coaster has still yielded shareholders a better than 90% return over the last trailing three-year stretch. Not bad considering the volatility.

However, the rally may not be over. Business is only just beginning to come back, and a generous cash return policy has Applied's stock trading for a reasonable valuation.

AMAT Chart

Data by YCharts.

2020 off to a solid start

Sales retreated 13% in fiscal 2019, driven by the especially cyclical memory chip industry and falling revenue from display manufacturing. Adjusted earnings per share tumbled 27% on the year, offset by Applied's share repurchase program, which reduced total share count by nearly 8%.  

However, the situation started to improve during the fourth quarter, with sales coming in flat year-over-year and adjusted earnings falling only 6%. Demand for Applied's services continued to firm up in the fiscal 2020 first quarter (ended Jan. 26, 2020). Sales and adjusted earnings increased 11% and 21%, respectively, over the depressed period a year ago. The semiconductor segment was responsible, with customers gearing up to manufacture new hardware like 5G wireless network equipment, leading to the advance in the business division. Global services also notched a nice increase, while demand from display manufacturers remained muted as organic light-emitting diode (OLED) displays disrupted the existing supply line for the time being.

Applied Materials Business Segment

Q1 2020 Revenue

YOY Change

Semiconductor systems

$2.81 billion

24%

Global services

$997 million

4%

Display and adjacent markets

$332 million

(35%)

Data source: Applied Materials. YOY = year over year. 

One cheap way to ride the next semi wave

While the semiconductor industry starts to show signs of a rebound, Applied isn't just about riding the cyclical waves. New chips and end markets are compounding on top of stabilizing demand for legacy tech like PCs, laptops and tablets, and smartphones. Artificial intelligence and edge computing, 5G wireless, and data centers used for cloud computing are all long-term growth trends that should float Applied for years to come.  

Applied Materials workers are shown wearing protective clothing while working in a chip manufacturing clean room.

Image source: Applied Materials.

It will no doubt be a bumpy ride along the way, as it usually is, but Applied Materials stock is an easy way to get broad-based exposure to most of the leading-edge technologies driving innovation and lifting basic tech commodity demand higher. Even with expected disruption from the novel coronavirus outbreak in China (an important market for sales and manufacturing), Q2 2020 revenue is expected to be nearly 23% higher than a year ago at the midpoint of guidance. As a result, adjusted earnings per share of $0.98 to $1.10 also implies at least a 40% increase. Shares trade for just 14.6 times forward expected earnings.

Besides the stock looking cheap based on the outlook for the year ahead, operating profit margins are still trending up -- though the dip last year clouds the picture a bit. Nevertheless, as business starts to come back, so will profit margins. Paired with Applied's share repurchases (another $200 million worth of stock was purchased in Q1 alone), it's a powerful duo that should lift the bottom line higher. A dividend yield of 1.3% a year doesn't hurt either.  

AMAT Operating Margin (TTM) Chart

TTM= Trailing Twelve Months. Data by YCharts.

Simply put, Applied Materials stock still has plenty left in the tank -- in both 2020 and the years ahead. Basic tech manufacturing has found a bottom, and the company is helping fuel the next wave of innovation. Don't get hung up on the 2019 super rally -- give Applied shares another look.