Monday, March 26, 2007

Calls of Note Part 1

- JP Morgan notes that following their successful seasonal call from Aug. '06 to Jan. '07, they have maintained a C1H07 trading range call with expectations for limited downside on valuation support and buybacks. The firm has also recommended buying semiconductor equipment stocks to prepare for a likely late 2Q/early 3Q upward inflection. In line with their thesis, they placed three stocks on the JPMorgan U.S. Equity Focus List and also introduced Share Gain and Margin Expansion Thesis. However, because they feel the odds of acute memory-related equipment demand weakness is fading and primary research suggests logic and foundry chipmakers are jockeying for C2H07 manufacturing slots, they are making the inflection call now.

Key Catalysts. 1) April Earnings Season - JPM expects it to be good with comments that memory is solid and the foundry outlook is better at the margin. 2) Memory Price Stabilization - Appears to be happening in Flash and the fir expects the same to occur for DRAM in C2Q07. 3) Visibility for increased Logic/Foundry Orders - happening at the margin now.

Also, it is firm's distinct impression that a large percentage, a large majority actually, of growth-oriented investors/institutions that they have met with are underweight semiconductor equipment and related stocks or are out altogether.

Tier One Top Picks on competitive share gain include OW-rated ASML (NASDAQ:ASML), Mattson (NASDAQ:MTSN), Ultra Clean Holdings (NASDAQ:UCTT), and Varian Semi (NASDAQ:VSEA). Tier Two Top Picks on segment share gain include OW-rated Cymer (NASDAQ:CYMI) and KLA-Tencor (NASDAQ:KLAC).

Time to Step Up to OW-Rated Lam Research (NASDAQ:LRCX). According to JPM, Lam has the same catalysts as above plus the likelihood of increased C3Q and C4Q shipment guidance during the April and/or July earnings seasons on improving Foundry demand.

Notablecalls: While I don't agree with this call fundamentally, I do recognize the trading dynamics surrounding these stocks. Watch LRCX today for some upside.

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