Goldman promotes semiconductor stocks
ASML, a Dutch semiconductor equipment maker, is the only one producing a machine that uses extreme ultraviolet lithography, a technology that allows chips to hold vast amounts of data on a tiny scale and that took 20 years to develop.
In a Sept. 21 research note, Goldman forecasts that ASML will ship 71 EUV machines to chip makers in 2025, up from 44 units this year, and said its next-generation machines sell for an average of 270 million euros ($317 million).
According to Goldman Sachs, rising demand for EUV technology, which enables high-power computing, 5G, and artificial intelligence, will benefit ASML and its suppliers.
“The role of EUV machines will be more extensive than we previously thought,” the analysts predicted, citing increased demand for newer models as the reason.
“We now forecast a significantly larger overall lithography addressable market than we previously expected, implying a continued strong share of global semicap equipment spending,” they added.
The bank has a buy rating on ASML and anticipates that EUV technology will be used for a broader range of chips, as well as rising gross margins.
“While ASML is at the heart of this ecosystem, with a 100 percent global market share in EUV lithography tools, there are a number of key players globally supporting the EUV ecosystem,” the bank said.
JEOL, a Japanese electron microscope developer that has expanded into semiconductor equipment, is one of these suppliers. According to Goldman, it manufactures a technology known as multi-beam mask writing equipment, which has a “incremental growth opportunity.” The stock is rated buy by the bank, and it is also on its conviction list.
HOYA, which has supplied customers such as Samsung and chipmaker TSMC since 1974, is also on Goldman’s buy list. According to the bank, it manufactures mask blanks and has a 70 percent market share of EUV blanks. TSMC is also rated buy and is on Goldman’s conviction list; the bank claims to have around half of all active EUV machines installed globally.
Along with TSMC, SK Hynix is collaborating closely with ASML, signing a five-year contract in February to purchase EUV machines, according to Goldman. The stock is rated buy by the bank.
According to the bank, Shin-Etsu, a Japanese company that also manufactures mask blanks, has “significant long-term growth potential due to its technological expertise and close relationship with the world’s leading semiconductor material makers.” The stock is rated as a buy.
Meanwhile, Tokyo Ohka Kogyo is a buy for Goldman because of its position in the EUV supply chain, and the bank forecasts top-line compound annual growth of nearly 55% between 2020 and 2023. Tokyo Electron, a fellow Japanese firm, is set to benefit from ASML’s rising machine production because it is a “sole supplier” of coating and developing machines for the EUV process, according to Goldman, who rates the stock a buy.
Samsung is also rated as a buy. “We believe that being the first to adopt EUVs will provide an opportunity for the company to widen the cost gap with its competitors, and we expect the company to continue to be the industry market share leader,” the analysts wrote.
Morgan Stanley likes hydrogen stocks
“In 2020, excitement about hydrogen as an industrial and sustainable disruptor peaked. As share prices have fallen, we have consulted our global analysts to see what the future holds for this technology; what is hype, what is hope, and what is reality?”
Hydrogen has piqued the interest of investors as a “clean” burning fuel that could replace diesel or gasoline and is produced through a process known as electrolysis. If the electrolysis that splits water into hydrogen and oxygen is powered by renewable energy, the resulting fuel is referred to as “green hydrogen.”
According to Morgan Stanley, it is a sector that will necessitate significant investment due to the large amount of renewable electricity required to power the process. The bank estimates that the cost will be between $2 trillion and $3 trillion by 2030. “Our analysts… estimate a direct Hydrogen TAM [total addressable market] of $800 billion by 2050, but also a second-derivative impact exceeding $5 trillion in investment,” according to the research note.
Morgan Stanley compiled a list of 80 stocks with a hydrogen theme, and its analysts are bullish on about 30 of them. Renewable energy and equipment manufacturers, as well as hydrogen production and infrastructure, are among the stocks to watch.
Picks for renewable energy
According to Morgan Stanley, Europe is a “bellwether” for the market because the EU’s Hydrogen Strategy provides incentives for hydrogen technologies to reach large-scale maturity between 2030 and 2050.
Morgan Stanley is bullish on Acciona Energia, the “world’s largest operator in 100 percent clean energy and renewables,” as well as EDF, France, and Iberdrola, Spain, two of Europe’s largest electric utility companies. It also likes the Danish company Orsted, the world’s largest offshore wind operator, and the British company SSE.
Chinese renewables firms China Suntien Green Energy and CGN New Energy Holdings are also on its list. The bank is overweight Exelon Corp and Public Service Enterprise Group in North America, both of which are “competitive” businesses with “low carbon intensities.”
Morgan Stanley’s list also includes several equipment manufacturers, including TPI Composites, which manufactures wind turbine blades, and Prysmian, which operates cables.
Stockpiles of hydrogen
Morgan Stanley favors Nel, as well as the hydrogen fuel-cell company Johnson Matthey and the hydrogen train manufacturer Alstom, in Europe.
Air Products and Chemicals, which manufactures hydrogen refueling infrastructure and equipment, and Linde, a hydrogen mobility company, are among the bank’s North American picks. It also chose New Fortress Energy, which is working to develop new hydrogen technology.
BofA thinks that Tesla (TSLA) could benefit from China
A Chinese finance official described Common Prosperity as a “bigger cake with more pieces.” However, it may mean less cake for U.S. multinational corporations,” said Savita Subramanian, Bank of America’s head of U.S. equity and quantitative strategy, in a note Thursday.
Chinese President Xi Jinping has called for “common prosperity,”. He has advocated for limits on “excessive” income and for the wealthy to contribute more to society. Alibaba announced a $15.5 billion investment in “common prosperity”.
According to Bank of America, the move could have a knock-on effect on a slew of US companies that generate revenue from China. According to the bank, those affected work in a variety of industries, including consumer, automotive, gaming, and lifestyle.
“The United States consumer sector has both direct and indirect exposure to China, both through sales exposure and supply chain,” Subramanian explained.
“China’s emphasis on closing the wealth gap may dampen demand for high-end U.S. luxury brands,” she added.
Agilent, Mettler-Toledo, and Waters have some of the highest sales exposure to the region among S&P500 companies, according to the bank.
According to Bank of America, Elon Musk’s company has about a 20% sales exposure to the region.
Due to policy uncertainty, investors have reduced their exposure to Tesla. Active funds have been reducing their exposure to the stock this year, and hedge funds are net short the stock, according to Bank of America.
According to the strategist, Tesla could face additional pressure if the “Buy China” sentiment prevails. The stock is up more than 6% this year, compared to the S&P500′s roughly 18% gain.
According to the bank, suppliers in the automotive industry may be “disproportionately impacted” by China.
“Many suppliers are true multinational corporations with wholly owned or consolidated operations in the region,” according to Bank of America.
Adient, Aptiv, BorgWarner, and Lear and Visteon are among the suppliers with the most pronounced China exposure, according to the bank. Aptiv and BorgWarner are both members of the S&P500 index.
Biogen gets upgraded
The FDA approved the drug in June, despite the fact that an independent panel of outside experts recommended against it, citing insufficient data.
“Our physician survey indicated that insurance coverage will be a barrier to adoption at first; however, we believe that given the large market and significant unmet need, Aduhelm will be a significant blockbuster,” the note stated.
The drug’s high price is part of the controversy, and demand appears to be slow. According to a FactSet transcript, management at Biogen’s Investment Day stated on Wednesday that the company is facing “near-term challenges with the launch of Aduhelm.”
However, Needham believes the drug, along with other potential drugs in development, will be a long-term financial success for Biogen.
“Despite the controversy surrounding the Aduhelm’s clinical data and pricing,” the note stated, “we believe the product will be a blockbuster given the significant unmet need in the market.” “Aduhelm’s ramp, combined with visibility into Biogen’s pipeline, should drive stock momentum.”
Buying on the dip
“In our previous note, we argued that retail investors’ willingness to buy the dip was dwindling. “That statement was not entirely correct,” Vanda Research senior strategist Ben Onatibia informed clients. “They are still eager to buy the dip, but they are demanding higher discounts in order to deploy their idle cash.”
According to Vanda, the purchases of the amateur crowd were concentrated in broad-market exchange-traded funds such as the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ).
Retail investors, on the other hand, flocked to their technology darlings such as Apple, Microsoft, Advanced Micro Devices, and Nvidia when purchasing individual stocks.
In the last five trading days, retail investors purchased nearly $363 million in Apple stock. The company just held a “California Streaming” launch event last week.
Apple has unveiled new iPad, iPhone, and Apple Watch models. Contrary to popular belief, it did not release new AirPods headphones.
Individual investors also spent more than $154 million on Advanced Micro Devices stock and $54.5 million on Nvidia, another semiconductor company. The group spent approximately $90 million on Microsoft stock.
Despite heavy buying in technology names, retail investors did not abandon so-called meme stocks and some risky China plays entirely. In the last five trading days, the group spent more than $90 million on AMC Entertainment and more than $83 million on Alibaba.
The group also invested millions of dollars in Wynn Resorts and Las Vegas Sands. This week, Wynn and Las Vegas Sands have lost more than 2% and more than 4%, respectively.
Intel and Verizon Communications were also named to the list.
With the major averages lower for the month, the stock market is living up to its September seasonal weakness. On Monday, a confluence of risks ranging from China’s real estate sector to the Federal Reserve’s tapering triggered a market rout accompanied by a surge in volatility.
Morgan Stanley’s Mike Wilson, one of Wall Street’s most bearish analysts, sees a “destructive” scenario in which the S&P500 suffers a 20% correction as some economic indicators begin to deteriorate.
The market attempted a rebound on Tuesday, but those gains were quickly erased in morning trading.
“We are entering a period where liquidity will be reduced slightly and questions about global growth will emerge,” said Bill Hornbarger, chief investment officer at Benjamin F. Edwards. “There is more volatility and uncertainty, but the environment remains favorable for equities.”
ETFs to avoid
According to CFRA head of ETF and mutual fund research Todd Rosenbluth, exchange-traded funds focusing on lower volatility, higher dividend, and quality stocks would be worthy candidates for investors concerned about market volatility but still seeking equity exposure.
Low-volatility funds frequently track stocks with the lowest daily volatility over the previous year, implying that their movements are less dramatic when compared to the broader market. Dividend funds are popular as investors seek to lock in income during periods of uncertain price returns. Meanwhile, in uncertain macroeconomic environments, quality stocks tend to provide some stability and safety.
Here are some popular ETFs that use those strategies:
S&P500 Low Volatility ETF from Invesco
Vanguard High Dividend ETF (Vanguard High Dividend ETF)
Edge MSCI Quality ETF (iShares)
Furthermore, defined-outcome ETFs from Innovator ETFs or First Trust can help buffer portfolios with options, according to Rosenbluth. Defined-outcome ETFs provide investors with exposure to the price return of broad equity markets up to a predetermined upside return cap, with built-in downside buffer levels.
The Innovator U.S. Equity Buffer ETF, for example, seeks to track the return of the SPDR S&P500 ETF Trust up to a predetermined cap while protecting investors from the first 9 percent of losses over the outcome period.
Invest in cyclicals when they are at a low.
If you’re in the bull camp, many Wall Street analysts agree that buying the dip in cyclicals is a good idea.
“On dips, we buy cyclicals in the United States, such as financials. NewEdge Wealth co-founder Rob Sechan added, “Energy as well.” “In the medium term, owning equity quality assets is still the way to go. I would not hide behind technical names. You’ll get a little more bang for your buck if you take advantage of this opportunity to learn about cyclicals.”
Cyclical sectors, such as finance, energy, and materials, had been the best performers in 2021. They have recently taken a hit, however, as the Covid delta variant has dented hopes for a smooth economic recovery.
Credit Suisse screened for “most cyclical stocks” with faster forecasted earnings-per-share growth, better bottom-line revisions, and more reasonable valuations for investors betting on a rally in sectors sensitive to economic growth.
Many prominent market strategists remain bullish on the market. widely circulated. JPMorgan quant guru Marko Kolanovic agreed that the sell-off was overdone.
“Risks have been identified and priced in, with stock multiples for many reopening/recovery exposures returning to post-pandemic lows,” Kolanovic said. “As delta inflects, we expect cyclicals to reclaim leadership.”