Semiconductor equipment manufacturer Applied Materials ($AMAT) looks to be setting up quite well in a very constructive basing pattern. The semiconductor sector has been showing signs of strength over the last month, and I opened a position in AMAT in late May. NVDA and other stocks in this space have been benefiting from the shortage of semiconductor chips, and I believe Applied Materials may be next to begin a strong uptrend. With fantastic quarterly earnings growth of 83% and an increase in sales by 41%, AMAT has the potential to become a large, liquid leader that everyone wants to own. Remember, it is funds and institutions that control the market. They cannot buy penny stocks or illiquid names. They prefer to own companies like AMAT that have huge market caps (in this case over $127 Billion). In addition, Applied Materials sports a very healthy 41% return on equity, indicating their efficiency at generating profits.
AMAT is also shaping up really well on a technical basis. I particularly like the hammer bar on the weekly chart off the lows around $114, as this may be a sign of institutional support. After retaking its'10-week line, AMAT has consolidated calmly on low volume, which is something I always like to see. I currently own a full position in AMAT and will continue to hold until the market tells me it is time to exit. Patience pays.
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Full Disclosure: I currently own AMAT.
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