After you receive this Alert, we will be buying 25 shares of Lam Research (LRCX) at roughly $165.65. Following the trade, LRCX will represent 2.36% of the portfolio.
We are making a small buy this morning in Lam Research, picking up shares in what seems to be an endless amount of selling in the semiconductor stocks. We'll use this weakness to our advantage, adding shares and making our position larger ahead of the upcoming inflection (a few quarters away) to memory prices. Remember, as we described in our initiation here, we believe the declines in memory pricing will lead to cutbacks in capex and wafer fab equipment. Although this will lead to a few quarters of earnings weakness for Lam (and this is priced-in to current estimates), what it will also do, and what we believe is currently underappreciated by the market, is cause growth trends in DRAM/NAND supply to be below demand growth trends. When you have demand growing faster than supply in any type of market, plain old economics reasons that prices must increase. This will lead to a return of cap-ex spending and a return to Lam Research's earnings power.
Meanwhile, the shares are giving you a good yield here at ~2.65% and management is currently buying back stock hand over fist with its $5 billion share repurchase program -- a huge figure relative to the company's $25 billion market cap. Based on management's willingness to gobble up stock around these prices and at this stage in the commodity cycle, we also viewed the buyback announcement as a "call" that the industry will soon turn and that the bottom in the stock has been put in. We discussed this in detail with historical examples in our members-only conference call here.