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Undervalued Applied Materials Stock Could Be on the Verge of a Breakout

We’re right smack in the middle of earnings season, and one of the most highly anticipated reports revolves around Applied Materials (NASDAQ:AMAT) stock.
Source: Shutterstock
Without a doubt, both the bulls and bears are placi…

We’re right smack in the middle of earnings season, and one of the most highly anticipated reports revolves around Applied Materials (NASDAQ:AMAT) stock.

Source: Shutterstock

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Without a doubt, both the bulls and bears are placing their bets on AMAT stock ahead of the company’s upcoming data release and webcast, which are scheduled for Feb. 16.

Sure, it would be great to see Applied Materials knock it out of the park with Street-beating results.

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After all, we’re supposed to root for America’s tech-component makers while there’s a shortage going on, right?

Fair enough, but prospective investors don’t need to wait until after the earnings event to get in on a great deal. As we’ll see, AMAT stock is relatively cheap and the window of opportunity might not last much longer.

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To borrow a phrase from InvestorPlace contributor Dana Blankenhorn, 2021 was a “grand year” to stay in the trade with Applied Materials. This year could also be grand, with the greatest rewards coming to the most patient investors.

A Closer Look at AMAT Stock

Indeed, “grand” is the right way to describe AMAT stock’s performance last year. In 2021, believe it or not, the stock catapulted from $95 to $157.

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Note, however, that it wasn’t always an easy ride to the top. From April through September 2021, the Applied Materials share price was stuck in a tight, frustrating range.

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AMAT stock recently pulled back into that range, trading today at around $140. Will the stock stay stuck in neutral now, bouncing between $125 and $145?

Only time will tell, but we’ve seen what the buyers are capable of. In mid-January, they pushed the Applied Materials share price up to $167, albeit just for a day.

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Ranges are meant to be broken, and AMAT stock is no exception. Any test of $145 could signal a breakout to the $160s and higher.

A Chip Champ for Value Hunters

There’s a good-news, bad-news situation going on for Applied Materials investors.

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The bad news is that the company pays a rather paltry forward annual dividend yield of 0.72%. Thus, AMAT stockholders will have to rely mostly on share-price appreciation in order to turn a profit.

The good news, though, is that the stock is a major bargain, according to an old-school valuation metric.

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If you’re assuming that all tech stocks are overpriced, then think again. Applied Materials’ trailing 12-month price-to-earnings ratio is surprisingly low at 20.70.

That’s a compelling value for a tech-component giant with $23.06 billion in revenue. It’s not every day that investors get to apply a “buy low, sell high” strategy with a company that has roughly 15,700 patents and employees in 19 countries.

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A New Phase

Furthermore, a low-priced purchase of AMAT stock represents a stake in a company that never stops creating and innovating.

Applied Materials just revealed that it’s moving forward with a new phase of its research and development (R&D) engagement with the Institute of Microelectronics (IME), a research institute of Singapore’s Agency for Science, Technology and Research (A*STAR).

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In this collaborative effort – which was made official through the signing of a five-year extension – Applied Materials and IME will attempt to drive “breakthroughs in heterogeneous integration and advanced packaging for semiconductor innovation.”

Only time will tell how this partnership will enhance Applied Materials’ product and service offerings.

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For the time being, though, it’s exciting to consider the collaboration’s implications on “global technology inflections,” as Applied Materials South East Asia Pte. Ltd. Regional President Brian Tan put it.

The Bottom Line on AMAT Stock

Applied Materials is a tech-industry giant that was a darling of the market for a while last year. The company has been largely overlooked on Wall Street so far this year.

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That’s not necessarily bad news. Overlooked businesses with an innovative spirit, like Applied Materials, can provide rare investment opportunities.

Hence, value-focused individuals should seriously consider a position in AMAT stock.

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Hesitating won’t likely pay off, as the chance to use a “buy low, sell high” strategy with Applied Materials might not last much longer.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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The post Undervalued Applied Materials Stock Could Be on the Verge of a Breakout appeared first on InvestorPlace.

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