Market. Consumer staples had been the recommended safety trade after the 2008 financial crisis and performed very well since that time. Now those same stocks are being sold off. Capital is going into stocks perceived to be more growth orientated, such as bit-coin and cannabis. Investors should not chase the latest and greatest at whatever valuation; be less emotional and think about holding it for 5-10 years.
The major issue is surrounding QE in the EU. It will likely take two years before interest rates will begin to rise in Europe before earnings will grow. At this point the company has done well selling off poor assets, but it will take time. He would be a buyer here. They have announced there will not be any dividend increase for a few years.
The hype around this company is disconcerting. He wonders if they will be able to execute on what they promise. At these valuations, it is not something he would recommend to clients. A company this big will have a very difficult time doubling in value. Market cap is $780 billion – bigger than the Swedish GDP.
The issue is they have not recovered from issues in the US and the global 2008 financial crisis. The CEO has just been replaced. The problem is regulators have forced banks to get out of higher margins business. The Trump Administration has helped reverse some of this. If you have a multi-year hold this could be interesting.
The Chinese are attempting to build their own semi-conductor facility and they need to buy the equipment – this company is who they would buy from. This new demand has caused sales to sky-rocket. The question is, will this sales growth continue. He expects some increased competition in prices so these valuations are at their stretch point. He would prefer to buy at the bottom of the cycle rather than at the peak.
The major components in developing a semi-conductor foundry are from companies like this. With the Chinese building new facilities there is enormous demand for the equipment that AMAT-O produces. The question is will the demand continue? The time to buy was 2015. This is a better trade than a long term hold. You could consider shorting it when it starts to show weakness.