SIVY ON STOCKS from money.com
December 4, 2000

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Monday, December 4 at 8pm ET, 5pm PT
Michael Sivy identifies sectors and stocks that
possess true value in a rocky market.
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Nasdaq crash victim

Applied Materials has fallen to fire-sale prices.

By Michael Sivy

The Dow may be down only 10 percent from its 52-week high, but the Nasdaq
is in the middle of a screaming bear market, down nearly 50 percent from
its high in March. Computer stocks have been among the hardest hit,
particularly PC makers: Compaq is down 34 percent from its peak, Dell is
off 68 percent and Gateway, 76 percent.

The weakness extends down the food chain. Intel, which counts on PC makers
for a large slice of its semiconductor sales, has lost 56 percent. And
Applied Materials [AMAT], the leading producer of semiconductor equipment,
is off 66 percent.

I don't believe that the outlook for these stocks is nearly as bleak as
their recent performance suggests. It's true that the crucial
fourth-quarter season isn't looking very bright. And the most pessimistic
analysts argue that PCs are becoming like television sets -- commodities
distinguished only by price. Without the ability to charge premium prices
for added bells and whistles, the thinking goes, already-thin profit
margins will deteriorate even more. But over the next five years, sales for
top companies in the PC sector are projected to grow 12 percent to 15
percent annually, and earnings could rise 16 percent to 20 percent or more.

The next few months may be trying, but they should offer investors great
long-term buying opportunities. And the best one, to my mind, figures to be
Applied Materials, which is capable of growing profits an average of 25
percent a year.

The stock's big drawback is its extraordinary volatility. Even when it
looks cheap, it's capable of falling further if the technology sector is
doing poorly. And since two-thirds of sales come from overseas, Applied
Materials is fully exposed to the vagaries of international economics, from
the weak euro to Asian financial problems. In fact, I've recommended the
stock several times before at higher prices, only to watch it go even lower.

At this point, however, I don't see how it could fall much more. Analysts
have reduced earnings estimates for the current fiscal year (ending Oct. 1,
2001) from $3.50 a share two months ago to as little as $2.10 today. But
even based on these reduced estimates, at $38.50 a share the stock is
trading at less than 19 times earnings, or just 0.8 times its long-term
growth rate.

Business conditions may well be tough through the first half of 2001, and
some analysts see the stock going as low as $33 or $34 before bottoming.
But business conditions should improve by the second half. Given that the
stock could easily trade at more than double today's price in a more
favorable market, the potential upside looks 10 times greater than the
downside.


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