Applied Materials Stock Lost 5.5% In A Day. Do You Buy Or Wait?

Applied Materials (AMAT) stock is down 5.5% in a day. The stock looks fairly priced at the moment, though history suggests you may benefit from buying dips. Consider the following data:

• Size: Applied Materials is a $169 Bil company with $29 Bil in revenue currently trading at $211.56.
• Fundamentals: Last 12 month revenue growth of 6.6% and operating margin of 30.1%.
• Liquidity: Has Debt to Equity ratio of 0.04 and Cash to Assets ratio of 0.21
• Valuation: Applied Materials stock is currently trading at P/E multiple of 24.7 and P/EBIT multiple of 18.4
• Has one instance since 2010 where it dipped >30% in < 30 days and subsequently returned 195% within a year. See AMAT Dip Buy Analysis.

While we like to buy dips if the fundamentals check out – for AMAT, see Buy or Sell AMAT Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and AMAT drops another 20-30% to $148 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience. Turns out, the stock has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

AMAT stock has fallen meaningfully recently and we currently find it fairly priced. This may feel like a caution, and there is significant risk in relying on a single stock. However, there is a huge value to a broader diversified approach we take with Trefis High Quality Portfolio. Should you buy one stock you like or build a portfolio designed to win across cycles? Our numbers show that High Quality Portfolio has turned stock-picking uncertainty into market-beating consistency. This portfolio is incorporated in asset allocation strategy of Empirical Asset Management – a Boston area wealth manager and Trefis partner – whose asset allocation framework yielded positive returns during the 2008-09 period when the S&P lost more than 40%.

Below are the details, but before that, as a quick background: AMAT provides manufacturing equipment, services, and software for semiconductor chip fabrication and display technologies, including LCD, OLED, and other displays for various electronic devices.

2022 Inflation Shock

• AMAT stock fell 55.4% from a high of $167.00 on 14 January 2022 to $74.41 on 17 October 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 19 January 2024
• Since then, the stock increased to a high of $254.97 on 10 July 2024 , and currently trades at $211.56

 
2020 Covid Pandemic

• AMAT stock fell 43.6% from a high of $67.41 on 19 February 2020 to $37.99 on 20 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 14 August 2020

 
2018 Correction

• AMAT stock fell 52.9% from a high of $61.61 on 9 March 2018 to $28.99 on 24 December 2018 vs. a peak-to-trough decline of 19.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 15 November 2019

 
2008 Global Financial Crisis

• AMAT stock fell 64.5% from a high of $22.96 on 8 August 2007 to $8.14 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 7 July 2014

 
Worried that AMAT could fall much more? You could take a look at the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.