Analysis: LRCX

After you receive this Alert, we will be buying 50 shares of Lam Research at roughly $175.03. Following the trade, (LRCX) will represent 2.29% of the portfolio.

Shares have been trading somewhat sideways to lower as of late, making now a good time to add to our position and improve our cost basis before what we believe to be a longer-term move to the upside. As we described in our initiation here, quarterly earnings are expected to decline on a sequential basis over the first few quarters of calendar year 2019, however that's not the dynamic investors should be focused on. Instead, it is all about industry conditions and how growth trends in DRAM/NAND supply will be below demand growth in the back half of the year, forcing the memory market to tighten and an inflection in both prices and chip maker spending. Very positive for Lam Research, who is a market share gainer in the industry.

To top it all off, we believe management's favorable capital return program and their commitment to return at least 50% of free cash flow to shareholders offers plenty of downside support to the stock and will reward for our patience in the cycle. At its current price, the dividend yield is roughly 2.52%, and management's aggressive $5 billion share repurchase program represents about 20% of the company's total market cap. We think their willingness to buy stock hand over fist at these prices represents a call that the stock has bottomed, and importantly, that industry dynamics will improve and become supportive of a longer-term earnings power trend towards $23 to $25 in calendar year 2021.