Breaking News
Black Friday SALE: Up to 54% off InvestingPro! Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Ahead Of Lam Research Quarterly Earnings, 3 Ways To Trade The Stock

By Investing.com (Tezcan Gecgil/Investing.com )Stock MarketsOct 18, 2021 08:57AM ET
www.investing.com/analysis/ahead-of-lam-research-quarterly-earnings-3-ways-to-trade-the-stock-200605381
Ahead Of Lam Research Quarterly Earnings, 3 Ways To Trade The Stock
By Investing.com (Tezcan Gecgil/Investing.com )   |  Oct 18, 2021 08:57AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

3 Lam Research Stock Trades For Long-Term Portfolios

  • LRCX stock is up more than 19% so far in 2021, and saw a record high in June.
  • Chip-equipment maker will issue quarterly metrics on Oct. 20.
  • Despite potential short-term volatility in Lam Research stock, buy-and-hold investors could regard any further short-term decline as an opportune entry point.

Investors in the semiconductor manufacturing equipment vendor Lam Research (NASDAQ:LRCX) have seen their shares go up by 19.5% so far this year. In fact, the stock hit an all-time high of $673.80 on June 1. By comparison the Philadelphia Semiconductor Index has returned 18.5%.

LRCX Daily
LRCX Daily

On Oct. 15, LRCX shares closed at $564.47. In other words, since the stock's record high over four months ago, the shares have lost about 16%. The 52-week range for the stock has been $333.31 (October 2020) - $673.80 (June 2021), while the companys market capitalization stands at $79.5 billion.

Recent metrics highlight: “The global semiconductor manufacturing equipment market is estimated to be USD 62.4 billion in 2020 and projected to reach USD 95.9 billion by 2025; at a CAGR of 9.0%.”

Lam Research is among the leading semiconductor manufacturing equipment suppliers. Its competitors include Applied Materials (NASDAQ:AMAT), ASML (NASDAQ:ASML), KLA (NASDAQ:KLAC), Teradyne (NASDAQ:TER) and Tokyo Electron (OTC:TOELY).

In late July, management announced robust results for the quarter ended June 27, (the June 2021 quarter”). Revenue came at $4.5 billion, up 8% sequentially since the previous quarter. Non-GAAP net income of $1.16 billion translated into earnings of $8.09 per diluted share.

On the results, CEO Tim Archer said:

The combination of strong semiconductor demand and rising device complexity is driving higher levels of wafer fabrication equipment investment. Our technology differentiation and deep collaboration with customers position Lam to extend our leadership across all market segments.”

Chip-equipment maker Lam is expected to release earnings next on Wednesday, Oct. 20 after the close. At that time, in addition to regular metrics, investors will want to know more about how the current chip shortage worldwide is impacting the company's top-line.

What To Expect From LRCX Stock

Among 28 analysts polled via Investing.com, Lam Research stock has an 'outperform' rating.

LRCX Consensus Estimate
LRCX Consensus Estimate

Chart: Investing.com

There's a 12-month price target of $723.25 on the stock, implying an increase of about 28% from current levels. The 12-month price range currently stands between $600 and $815.

Trailing P/E, P/S and P/B ratios for LRCX stock stand at 20.96x, 5.43x and 13.35x, respectively. We believe long-term investors could begin to find value around these levels.

By comparison, the same metrics for AMAT stock stand at 22.87x, 5.49x, and 9.85. And the P/E, P/S and P/B ratios for KLAC stock are 24.59x, 7.23x and 14.98x.

Readers who watch technical charts might be interested to know that a number of Lam short- and intermediate-term oscillators are urging caution. However, the long-term uptrend is still intact.

Finally, as part of the short-term sentiment analysis, it would be important to look at the implied volatility (IV) levels for Lam Research options. This metric typically shows us the market's opinion of potential moves in a security. However, this metric does not forecast the direction of the move.

LRCXs current implied volatility is 32.6, which is lower than the 20-day moving average of 37.8. This means implied volatility is trending lower. Although the current IV level could change, for now, the market does not seem to expect extreme choppiness in the shares.

Given the upcoming earnings release, LRCX stock could still come under further short-term pressure in the days ahead. Yet, our expectation is for Lam Research to find strong support between $500-$550 levels.

Although it might initially dip toward and even below $500, it is likely to bounce back before too long. Afterward, the shares would likely trade sideways while it establishes a new base.

3 Possible Trades On Lam Research Stock

1. Buy LRCX Stock At Current Levels

Investors who are not concerned with daily moves in price and who believe in the long-term potential of the company could consider investing in LRCX stock now.

On Oct. 15, Lam closed at $564.47. Buy-and-hold investors should expect to keep this long position for several months, if not multiple quarters, while the stock makes an attempt at the record high of $673.80. Such a move would lead to a return of almost 20% from the current level.

Then, the next step would be analysts’ price of the recent multi-year high of $723.35. Readers who opt for this approach, but are concerned about large declines, might also consider placing a stop-loss at about 3%-5% below their entry point.

2. Buy An ETF With Lam Research As A Main Holding

Many readers are familiar with the fact that we regularly cover exchange-traded funds (ETFs) that might be suitable for buy-and-hold investors. Thus, those who do not want to commit capital to LRCX stock, but would still like to have exposure to the shares, could consider researching a fund that holds the company as a top holding.

Examples of such ETFs include:

  • Invesco Dynamic Semiconductors ETF (NYSE:PSI): The fund is up 21.1%YTD, and LRCX stock’s weighting is 4.78%;
  • iShares Semiconductor ETF (NASDAQ:SOXX): This fund is up 19.8% YTD, and LRCX stock’s weighting is 3.88%;
  • SPDR® NYSE Technology ETF(NYSE:XNTK): The fund is up 15.7% YTD, and LRCX stock’s weighting is 2.81%;
  • Siren DIVCON Dividend Defender ETF(NYSE:DFND): The fund is up 4.8% YTD, and LRCX stock’s weighting is 2.17%.

3. Protective Put With An ETF

Readers who are long-term bullish on Lam Research stock but remain nervous about a short-term potential decline, especially in the chip sector, might consider buying a protective put in addition to their stock holdings.

Protective puts are usually done with the put option for the stock. However, we are fast approaching a busy reporting season for many tech names, including semiconductor companies. Therefore, investors could consider buying a put on a fund like PSI, which we have mentioned above.

On Oct. 15, PSI closed at $127.06. For instance, the trader might buy an at-the-money (ATM) put option, like the PSI Dec. 17 127-strike put option.

This option is currently offered at $4.95. It would cost the trader $495 to own this put option which expires in two months. As a result, LRCX investors who also hold shares would have some protection, especially during the earnings season, in case the chip shares decline.

However, the position would require constant monitoring and thus may not be appropriate for many readers. At expiry, this trade would break even at $122.05 (i.e., $127.00-$4.95).

In theory, a trader’s maximum gain would be $12,205 if the price of the underlying fund PSI were to go to zero. However, the probability of such a move is not high at all.

Traders would need to clearly determine their objectives before entering this trade (i.e., at what profit or loss level they would be ready to close the position if they are not holding it until expiry). If the underlying PSI closes above $127 on the day of expiry, the trader will lose all of the premium of $4.95.

Ahead Of Lam Research Quarterly Earnings, 3 Ways To Trade The Stock
 

Related Articles

Trading Point
Can Anything Stop The Stock Market? By Trading Point  - Nov 26, 2021

Stock markets have gone on an absolute rampage this year. The problem is that the factors that initially fueled this rally - heavy government spending and endless central bank...

Ahead Of Lam Research Quarterly Earnings, 3 Ways To Trade The Stock

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Eliya Olobikoo
Eliya Olobikoo Oct 18, 2021 1:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hllo
Ebah Wilfred Ngolle
Ebah Wilfred Ngolle Oct 18, 2021 1:09PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hey whats new
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email