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PREVIOUS GO LONG OPINION

Lam Research O'Okiep Copper      



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)

   

 

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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Last modified: April 16, 2001

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