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LRCX
(Lam Research)(Lam Research):
Lam Research is a manufacturer of wafer fabrication equipment and a
leading company in the semiconductor equipment industry. The company's products are used
to manufacture integrated circuits. The highly cyclical semiconductor capital equipment
industry has been mired in a deep 2 year slump as a sharp slowdown in product demand and
rapidly falling prices hit the industry. The book to bill ratio for the semiconductor
equipment making industry fell to 0.57 in September. LRCX, formerly a $1 billion in
revenues company, has been one of the hardest hit. Revenues in the company's first quarter
fell by 50%. The company's CEO cited a "...persistent downturn in the semiconductor
capital equipment market. Persistent over capacity in the DRAM market, the sharp reversal
in Asian economies, and concerns about growth in consumer end user markets..." as the
primary reasons for the revenue drop. The company expects second quarter revenues to drop
to $120 million and to incur a $1 a share loss.
We believe that the current share price of LRCX fully discounts the effects of the
continuing industry wide slowdown. The last leg down in share prices was driven largely
by negative sentiment. It is at the extremes of the sentiment scale that the best buying
and selling opportunities occur in the market. LRCX shares are now undervalued and are
attractive for purchase. The shares are trading at historically low levels of Price/Sales
and Price/Book. The company is taking steps to drastically reduce costs and will emerge
from the slowdown a leaner, more competitive company. We see a gradual recovery in the
semiconductor equipment industry in the second half of 1999 as the Asian markets begin a
slow recovery. LRCX will be one of the primary benefactors from an Asian recovery as sales
in the region begin to increase. LRCX derived 40% of its total revenues from Asia before
the crisis began. The Asian crisis has reduced the region to just 21% of LRCX's revenues.
Any increase in sales to the region will have a magnified effect on Lam's revenues and
bottom line. The falling dollar will also benefit the company as LRCX's Yen denominated
Japanese sales increase.
Technically, the shares of LRCX are showing signs of moving to the upside. Strong
divergences in daily RSI and weekly MACD were seen at the bottom. OBV and Money Flow have
both turned to the upside. Daily ADX has fallen below 40, confirming that a bottom is in
place. We look for these shares to recover to the $20-25 range in the next six months. (10/22/98)
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OKP
(O'Okiep Copper): The shares of South African copper
miner OKP fell from 8 in March of 1997 to a recent low of 1 5/8 as the Asian crisis and
heavy debt levels at OKP caused a complete loss of confidence by investors in the company.
The shares have rebounded slightly over the past few weeks as rumors have swirled that 81%
owner Gold Fields of South Africa is preparing to sell the company. We would not buy the
company on the basis of these rumors, but would instead purchase the shares as a leveraged
means of participating in a recovery in copper prices. We believe that copper has seen its
lows, and is poised to rise over the next year as Asian markets begin a slow recovery. OKP
shares historically have tracked the movement in copper prices. OKP returned to profit in
the June quarter as cost cutting and a depreciation of the South African Rand combined to
boost margins. We expect a rise in copper's price to further lift margins at troubled OKP.
Technically, these shares have been showing signs of strength. OBV has turned up,
and Money Flow is rising. RSI, MACD, and Stochastics all showed positive divergences
during the recent lows, and all 3 indicators have turned up. The shares have currently
retraced 50% of their April to July fall. We look for a recovering copper market to lift
these shares to the 5-6 level by year end. A return to positive growth rates in Asian
economies will help OKP shares return to the $8 level last seen in 1997. These high risk
shares are a buy based on their ability to provide leveraged exposure to a recovery in
copper prices. (7/27/98)
The company was acquired in March.
The stock ceased trading in April. The last trade was at 1. The
stock never reached fair value before being acquired, and the acquisition price was 67%
below the initial Go Long price. (5/99) |
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