Analysis of Semiconductor Equipment Maker Stocks

Semiconductor equipment makers design and manufacturer the equipment that makes semiconductors. Like the semiconductor industry the equipment makers are very cyclical so their stock prices mirror the semiconductor cycle. Many of the semiconductors equipment stocks are very speculative so prices are determined by momentum rather than fundamentals. Therefore, spectacular gains (5 to 10 fold or more) can be achieved in just one or two years.

The cyclical nature and huge price gains of semiconductor equipment maker stocks make them very attractive candidates for a short-term buy low/sell high strategy. The trick is to wait for the new upside and buy at low prices. Use the Complete Trading Model CTM to help you identify the change to the upside. Then use CTM to help decide when the price has peaked.

Currently semiconductor equipment stocks are on the upside of the first full cycle since the the 1998-2002 cycle. In this article we examine the current cycle.

Kulicke & Soffa - Case Study of a Cyclical Stock

The price chart of daily closes for Kulicke & Soffa (KLIC) shows a typical cyclical price pattern of a semiconductor equipment maker. The price peaks of cycles 1 to 4 show increasing peaks culminating with the 1998-2000 technology bubble. The upside price pattern on the right of the chart is the upside of cycle 5, which started on October 9, 2002 and is still in progress as of January 9, 2004, the date of this analysis. Read Kulicke & Soffa Fourth Cycle: 1998 - 2002.

The following table shows the start, peak and end dates and prices for the five KLIC cycles.

NOTE: The green cells in the table indicates the upside date and price of the highest price cycle 5 as of November 28, 2003. This price ultimately may or may not be the peak price of cycle 5.

The next table summarizes the duration and gains for the upside and length and losses for the downside of each cycle.

These data show that KLIC's maximum upside gains ((Peak Price-Start Price/Start Price)*100) are very impressive. You can make a lot of money in a brief period if you buy low and sell high. On the other hand, the downside losses are equally impressive.

The CTM analysis of the five cycles shows the cumulative percent winners and cumulative returns as of the peak of cycles 1 to 4 and the current values for cycle 5.

Analysis of the Current Cycle for Semiconductor Equipment Makers

In this section we examine the current upside of 50 semiconductor equipment stocks as of November 28, 2003. The stocks came from Yahoo! Finance and SEMI, an association of semiconductor equipment companies. Many of the companies have been in business for years and some only a few years. The list includes a mix of large and small companies.

The following table shows the starting price and highest price of the current cycle. For most stocks the price upside is still intact as of November 28, 2003. But for a few stocks, the price patterns is turning to the downside. So the current price may be below the highest price. The measure of gain is the ratio of the highest price to the starting price. For example, if the highest price is $20 and the starting price is $2, the ratio is 10, so the highest price is 10 times the starting price. Note:The price and market capitalization (Number shares outstanding*market price) data used in this article are from Yahoo! Finance as of November 28, 2003.

The five largest ratios, 7 to 12.5, are for starting prices of $2 or less. Higher starting prices tend to have lower overall returns. The lower-price stocks usually have lower market capitalization.

Large Cap Semiconductor Equipment Stocks

This table includes the upside prices and gains for stocks with a market cap of greater than $1 billion. Of the 13 stocks only one, AMKR, has a very large gain, 10. These data suggest that the large cap stocks have substantial gains but the gains are not of the magnitude of the smaller cap stocks. For most of the large cap stocks you have to pay more at the beginning of the cycle than for the small cap stocks. Therefore, there is less chance the stock will appreciate in percentage terms as much as a lower price stock.

What to do Now - Buy, Sell or Hold?

We recommend that you do not buy any semiconductor equipment stocks now. The prices are deep into the upside and the easy gains have been made. If you own stocks, consider selling them for a profit. Apply CTM to look for a down move in cumulative percent winners and cumulative percent gains. When they move down, sell quickly.

More price gains may occur but how much higher can prices go? The small cap stocks have made spectacular gains and the larger cap ones have made handsome gains. If you buy now, you're buying high which is always a big gamble. And many of the stocks show topping patterns and a few stocks have already turned to the downside. So protect your profits and do not commit any new money to these stocks. Wait for this cycle to end and be ready to buy low at the next one.

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