Stock Pick

  • Japan’s Hottest Stock Is Tiny Maker of $40 Million Chip Machines

    Japan’s Hottest Stock Is Tiny Maker of $40 Million Chip Machines(Bloomberg) — The list of Intel Corp.’s annual supplier award winners tends to read like a who’s-who of the semiconductor industry’s biggest names. This year, it included a little-known Japanese company whose machines have become indispensable in the race to improve semiconductors and whose stock has been rocketing up as a result.Lasertec Corp. is the world’s only maker of testing machines required to verify chip designs for the nascent extreme ultraviolet lithography (or EUV) method of chipmaking. In 2017, Lasertec solved a key piece of the EUV puzzle when it created a machine that can inspect blank EUV masks for internal flaws. Last September, it cleared another milestone by unveiling equipment that can do the same for stencils with chip designs already printed on them. This March, Intel gave the tiny Yokohama-based company an award for innovation, its first after decades of doing business together.“That’s a major milestone for us,” Lasertec President Osamu Okabayashi said in an interview. “It means a lot to be recognized this way as a supplier.”The company’s stock has soared more than 520% since the start of 2019, more than twice the gain of the second-best-performing security in the benchmark Topix index. That includes an increase of more than 50% this year.Intel declined to say if it was buying EUV equipment from Lasertec, which already supplies test gear to its rivals Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. The three chip fabricators are the only ones so far to announce EUV plans, because the technology is so complex and expensive. Okabayashi would only say that his company has “two or more” EUV customers.“This can be read as a sign that Lasertec’s tools are indispensable to Intel’s EUV roadmap.” said Damian Thong, an analyst at Macquarie Group Ltd.Read more: Japan’s Star Electronics Stock Will Be Vital to Intel, SamsungEUV is just entering the mass production phase after two decades in development, but investors are already betting Lasertec will be one of the key beneficiaries. The move to EUV overcomes key hurdles to shrinking manufacturing geometries of semiconductors, allowing more and smaller transistors to be crammed onto silicon. It promises to unleash another wave of gadgets that are slimmer, cheaper and more powerful.Last month, Lasertec raised its annual order forecast for the second time this year to 85 billion yen ($789 million) in the period ending June, nearly double the amount it received in fiscal 2019. The company is headed for the fourth straight year of record revenue and profits. Sales will climb 39% to 40 billion yen and profit will jump 76%, according to its estimates. And that’s likely to be just the beginning.Samsung earlier this month said it is building a 5-nanometer fabrication facility that will use EUV to make processors for applications ranging from 5G networking to high-performance computing from the second half of next year. Taiwan’s TSMC is pushing ahead with plans to adopt 3-nanometer lithography mass production in 2022 and announced plans to build an advanced fab in the U.S. Intel’s first product made using EUV is expected late next year.Their primary focus is on so-called logic processors, used to power devices and networking applications, but the new manufacturing technique will eventually filter through into the production of DRAM and other memory chips.Read more: Samsung Takes Another Step in $116 Billion Plan to Take on TSMC“Logic makers will be first to adopt EUV, with memory makers following later,” Okabayashi said. “The real volume of orders will come when they reach mass production stage. Right now it’s 7- and 5-nanometer chips. 3-nanometer is still in development stage.”Okabayashi expects each customer will probably need several of his testers, which could cost well over $40 million apiece and take as long as two years to build. A chipmaker would need at least one machine in its mask shop to make sure the stencils come out right. Another would go into a wafer fab to keep an eye on the microscopic wear and tear that result from concentrated light being projected repeatedly through the chip design stencils.“Lasertec is still trying to get a feel for this market and how big it can be,” Macquarie’s Thong said. “Their stock is moving on expectation of future orders. But there is little actual visibility on the scale of this market, so Lasertec retains a lot of capacity for surprise.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • The one sector that could experience a V-shape COVID-19 recovery

    Share price recovery chart

    There’s one sector that’s springing back to life from the COVID-19 pandemic – and no it isn’t residential property.

    Sales volumes for homes may be on the increase, but that doesn’t constitute a recovery as prices can (and are likely) to fall even as the number of transactions grow.

    This is because turnover is primarily driven by first home buyers, and this segment alone cannot do the heavy lifting as local and international investors flee the market.

    If there is one group of shares on the S&P/ASX 200 Index (Index:^AXJO) that will experience the much-touted but elusive V-shape recovery, it’s transport, according to the analysts at Macquarie Group Ltd (ASX: MQG).

    Revving for V-day

    This rebound is happening happening right before our eyes. The traffic around the local streets around my neighbourhood have been steadily increasing over the past few weeks – even before the lockdown restrictions were eased.

    We won’t need to wait for Transurban Group (ASX: TCL) to provide its quarterly traffic update before getting excited.

    Private cars vs. public transport

    Macquarie believes that commuters would much prefer the safety of driving their own cars than to risk catching coronavirus on public transport. This includes flying on the likes of Qantas Airways Limited (ASX: QAN).

    “A change in car use behaviour could be a tailwind for car sales,” said the broker.

    “There is no recovery in official data yet. But Google Searches for new and used cars have risen rapidly in recent weeks and this could signal material pent-up demand for new and used car dealers.”

    This will be great news for auto dealership group AP Eagers Ltd (ASX: APE), which was already battling slumping car sales well before we even named the dreaded pandemic.

    Hertz crashes recovery party

    However, the collapse of the car rental industry, which sent Hertz Global Holdings Inc scurrying into bankruptcy protection, may be a new headwind.

    Hertz is likely to be forced to sell most of its automobiles to raise much needed cash, according to CNN. It’s rivals like Avis Budget Group Inc. may be better placed financially, but they too could be forced to downsize their fleet.

    The report was focused on the US market but a similar trend could emerge here where relatively new vehicles are put on the market at discount prices. That won’t be good news for new or used car dealers.

    ASX shares best placed to benefit

    Macquarie’s analysis didn’t dwell on the impact of the car rental market, but it coincidentally picked three transport-linked stocks to buy that aren’t car dealers.

    These stocks won’t be impacted by rental car liquidations, and may even benefit!

    These are aftermarket auto parts group Bapcor Ltd (ASX: BAP), online car classifieds group Carsales.Com Ltd (ASX: CAR) and Transurban.

    One “All In” ASX Buy Alert, that could be one of our greatest discoveries

    Investing expert Scott Phillips has just named what he believes is the #1 Top “Buy Alert” after stumbling upon a little-owned opportunity he believes could be one of the greatest discoveries of his 25 years as a professional investor.

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    What it offers is an utterly unique strategy to position yourself to potentially profit alongside some of the world’s biggest and most powerful tech companies.

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    Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. Connect with me on Twitter @brenlau.

    The Motley Fool Australia owns shares of and has recommended Bapcor and Macquarie Group Limited. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended carsales.com Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

    The post The one sector that could experience a V-shape COVID-19 recovery appeared first on Motley Fool Australia.

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  • Could low oil prices and domestic flights make the Qantas share price a buy?

    share price higher

    The airline industry has buckled itself in for turbulent times amidst the coronavirus pandemic. Virgin Australia Holdings Ltd (ASX: VAH) has tragically tumbled into voluntary administration. Qantas Airways Limited (ASX: QAN) has continued to strengthen its ability to deal with the impacts of the coronavirus through increasing its liquidity position and employee stand downs. Could the recent recovery of the Qantas share price and its leading position in the market make it a buying opportunity? 

    What has been priced in? 

    It’s a very important question. Whether it is the broader S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO), or individual shares, has the market priced in a recovery before it has even happened? Or do asset prices reflect a more pessimistic outlook? 

    The newly announced easing of lockdown measures is a reflection of Australia’s improved coronavirus situation. Some changes that Victorians can look forward to on 1 June include overnight stays allowed at private residences, accommodation, campgrounds and caravan parks, community sport and a suite of leisure-related activities reopening. New South Wales residents will also be able to travel and holiday anywhere within the state. 

    Unfortunately, this does not mean that people will boarding planes. But it does show that there is a light at the end of the tunnel. If sectors such as sports, recreation, community spaces and retail can open successfully without a second wave of infections, then we can look forward to further easing measures in the coming months. This easing will no doubt include domestic travel. 

    Domestic flights

    Qantas’ domestic flights have been a key driver of its earnings. In 1H20, domestic flights delivered an underlying EBIT of $645 million compared to group international underlying EBIT of $162 million. My key concern is if domestic travel was allowed, are consumers eager to travel or still cautious about going outside? 

    The Australian Financial Review (AFR) reports that Australia’s biggest hotel operator, Accor, has started to see new bookings exceed cancellations. The AFR quotes Accor’s chief operating officer Simon McGrath as saying that its main booking platform, pre-pandemic, would “bring in about $1.6 million in bookings a day. That got back down to $100,000 but this week it went up to $400,000 to $500,000 a day.” 

    Will cheap oil help? 

    Oil has made a significant recovery following its absurd dip to -US$40 a barrel. Current prices are approximately US$33, which is still down 40% since March and down 50% since January. 

    Qantas’ first half FY20 fuel expense accounted for $1.975 billion of $8.564 billion total expenditure, or approximately 23%. I believe a combination of significant employee stand downs and cheaper oil prices should see improved margins should domestic flights continue. 

    Foolish takeaway

    Potential pent-up domestic travel demand, cheaper oil prices and much leaner business could be driving factors of a Qantas share price recovery. While much is still unknown today, I would rather be for, than against a Qantas share price recovery. 

    There are many misunderstood or hidden gems like Qantas that could experience a swift share price recovery following easing lockdown measures. Check out our free report for cheap ASX shares that are ready to recover.

    5 cheap stocks that could be the biggest winners of the stock market crash

    Investing expert Scott Phillips has just named what he believes are the 5 cheapest and best stocks to buy right now.

    Courtesy of the crashing stock market, these 5 companies are suddenly trading at significant discounts to their recent highs… creating what could be incredible opportunities for bargain-hungry investors.

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    Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

    The post Could low oil prices and domestic flights make the Qantas share price a buy? appeared first on Motley Fool Australia.

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