Option Trade 
Applied Materials, Inc. (NASDAQ:AMAT) Calls 
Monday, 19th September, 2016

** OPTION TRADE: Buy the AMAT JAN 20 2016 30.000 call at approximately $2.10. Place a pre-determined sell at $4.20.

Note: No protective stop losses added -- but if you wish to do so make it $0.85.

by Ian Harvey

September 19, 2016

Applied Materials, Inc. (NASDAQ: AMAT), a provider of manufacturing equipment, services and software to the semiconductor, display, solar photovoltaic (PV) and related industries across the world, continues to appear undervalued despite earnings growth accelerating faster than recent share price gains.

Applied Materials delivered a second consecutive strong quarterly performance, with third-quarter revenue increasing 13 percent and non-GAAP EPS rising 51 percent year-over-year and $0.02 above consensus. New orders surged 26 percent, reflecting across-the-board demand strength, while backlog rose 60 percent.

Current-quarter guidance was particularly strong and handily surpassed pre-reporting expectations. The company expects fiscal fourth-quarter revenue in the $3.2 billion–$3.4 billion range, which would be up in mid- to high-teens year-over-year. With gross margins expanding and costs well-contained, the company sees non-GAAP EPS in the mid-$0.60 range, compared to pre-reporting expectations of $0.48.

Year to date, Applied Materials, Inc. stock has yielded positive results for investors. So far this year the stock has jumped 63.09% as investors are hopeful that the trend can continue into the 2nd half of 2016. Breaking that down further, it has performed 4.12% for the week, 10.49% for the month, 28.70% over the last quarter, 47.81% for the past half-year and 91.15% for the last year.

Applied Materials has a one year low of $14.29 and a one year high of $30.44. The company has a market cap of $32.59 billion, a PE ratio of 23.78 and a beta of 1.79. The stock has a 50 day moving average price of $28.39 and a 200 day moving average price of $23.76.

Why Applied Materials?

Applied Materials (AMAT) is based in Santa Clara, CA. They are the Large Cap in this industry. In 2015, the company had sales of $9.7 billion, did R&D worth $1.5 billion and held 1341 patents. It has received Intel’s Preferred Quality Supplier Award for the last 5 consecutive years.

Their website says,

“We are the leader in materials engineering solutions used to produce virtually every new chip and advanced display in the world. Our expertise in modifying materials at atomic levels and on an industrial scale enables customers to transform possibilities into reality. At Applied Materials, our innovations make possible the technology shaping the future.”

The $31 billion market cap company shares price just below $30. The forward PE is 16.81 and PEG ratio is 1.07. Its estimated 2016 EPS is $1.75 a share.

Analyst Input

Analyst Jim Kelleher of Argus said that "amid widespread demand growth, foundry orders from Taiwan and display orders driven by OLED upgrade were particularly noteworthy.”

Kelleher raised his FY16 non-GAAP earnings forecast to $1.76 a share from $1.57 and FY17 forecast to $2.16 from $1.91.

"We believe the company's ability to address significant technology transformations bode well for AMAT going forward. Simultaneously, AMAT's increasingly efficient operations are helping it to expand margins and boost profits in a tight top-line environment," Kelleher added.

As such, the analyst reiterated his Buy rating on the stock and raised his target price by $5 to $34.

Shares of Applied Materials gained 18 percent in 2016, compared to a 35 percent gain for Argus-covered semiconductor stocks. This represents a huge turnaround, given that shares were down more than 25 percent in February.

Also, Applied Materials Inc.’s stock had its “buy” rating reiterated by investment analysts at Stifel Nicolaus in a research note issued recently. They now have a USD 36 price target on the stock.

Also, several other equities research analysts have recently commented on the company.

• 09/16/2016 – Applied Materials, Inc. had its “buy” rating reiterated by analysts at Needham & Company. They now have a USD 34 price target on the stock.

• 08/23/2016 – Applied Materials, Inc. had its “buy” rating reiterated by analysts at Argus. They now have a USD 34 price target on the stock.

• 08/19/2016 – Applied Materials, Inc. had its “sector perform” rating reiterated by analysts at RBC Capital. They now have a USD 30 price target on the stock.

• 08/19/2016 – Applied Materials, Inc. had its “buy” rating reiterated by analysts at UBS. They now have a USD 35 price target on the stock.

• 08/19/2016 – Applied Materials, Inc. had its “outperform” rating reiterated by analysts at Cowen. They now have a USD 32.5 price target on the stock.

• 08/19/2016 – Applied Materials, Inc. had its “buy” rating reiterated by analysts at Citigroup. They now have a USD 32 price target on the stock.

• 08/19/2016 – Applied Materials, Inc. had its “outperform” rating reiterated by analysts at Credit Suisse. They now have a USD 34 price target on the stock.

• 08/15/2016 – Applied Materials, Inc. had its “buy” rating reiterated by analysts at D.A. Davidson. They now have a USD 32 price target on the stock.

Six investment analysts have rated the stock with a hold rating, twenty have issued a buy rating and one has assigned a strong buy rating to the stock. The stock has a consensus rating of “Buy” and an average price target of $33.00.

Harvey’s Options Volatility Indicator

Conclusion

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the AMAT JAN 20 2016 30.000 call at approximately $2.10. Place a pre-determined sell at $4.20.

Note: No protective stop losses added -- but if you wish to do so make it $0.85.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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