275  7TH Ave  7th floor New York , NY 10001                                                                                                                dcullinanecpa@yahoo.com

​                                                                                                                                                                                                     Chelsea / Lower Manhattan​​

​Daniel Cullinane CPA                                   p 848-250-9587                                                                                                                                     

​SEPTEMBER NEWSLETTER

​Investors in both semiconductors and the industry’s capital equipment business have been on a long and outstanding run. With all the silos of the capital equipment arena still looking very positive for the rest of 2017 and next year, many Wall Street analysts remain positive. Most feel that spending for wafer fab equipment (WFE) still looks strong, demand for 3D NAND remains robust and while DRAM growth may be flat year over year, the supply/demand situation remains healthy.

A new research report from Patrick Ho, the outstanding analyst at Stifel, and his team notes that while stock prices are elevated, valuations are still fair. The report noted this:

From a stock’s perspective, we were not surprised by the sideways trading in the names since Semicon West, where we saw a decline during earnings season in July and a recovery in mid-to-late August. We believe many names, particularly on the large cap end, remain very attractive on a valuation basis when using 2018 estimates. If anything, we would not be surprised to see some upside to our current 2018 WFE outlook and this would drive further upside to our estimates (and make valuations even more attractive.

With the possibility of a continued rally into year-end, five stocks are especially attractive. All are rated Buy at Stifel.

Applied Materials

Some on Wall Street feel this semiconductor capital equipment leader has the broadest range of exposure to 3D NAND and foundry display. Applied Materials Inc. (NASDAQ: AMAT) is the global leader in precision materials engineering solutions for the semiconductor, flat panel display and solar photovoltaic industries. Applied Material’s technologies help make innovations like smartphones, flat screen TVs and solar panels more affordable and accessible to consumers and businesses around the world.

The company’s third-quarter earnings rose sharply and beat Wall Street expectations. Revenue increased 33% from the year-ago period.

Shareholders receive a 0.9% dividend. The Stifel price target for the stock is $61, while the Wall Street consensus price target is $55.02. The shares closed Thursday at $45.22.

KLA-Tencor

This is another strong large cap play for investors. KLA-Tencor Corp. (NASDAQ: KLAC) designs, manufactures and markets process control and yield management solutions worldwide.

It offers chip manufacturing products, such as front-end defect inspection tools, defect review systems, advanced packaging process control systems, metrology solutions, in-situ process monitoring products and lithography software; wafer manufacturing products comprising surface and defect inspection, wafer geometry and nanotopography metrology and data management; and reticle manufacturing products, such as defect inspection and pattern placement metrology products.

The company also provides light emitting diode (LED), power device and compound semiconductor manufacturing products consisting of patterned wafer inspection, defect inspection, surface metrology and data management products; thin-film head metrology and inspection, virtual lithography, in-situ process monitoring, transparent and metal substrate inspection and data management products for data storage media/head manufacturing; and stylus and optical profiling and optical inspection products for microelectromechanical systems manufacturing, as well as products for general purpose/lab applications.

The analyst cites the company’s strong execution, served available market (SAM) expansion and an industry-leading financial model. Analysts also see continued financial outperformance on strong market share and SAM expansion.

Shareholders are paid a solid 2.5% dividend. The $106 Stifel price objective is a bit higher than the consensus target of $105. The shares closed Thursday at $95.32.


Lam Research

This remains one of the top chip equipment picks across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device.

Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.

The company beat Wall Street’s June-quarter sales and earnings targets and guided analysts higher for the September quarter.

Shareholders are paid a 1.07% dividend. Stifel has a $215 price target, which compares with a consensus price objective of $191.11. The shares closed Thursday at $168.59.24/7 Wall St.
Why Are Credit Scores About to Rise?













































MKS Instruments

This stock flies somewhat under the radar but offers solid upside. MKS Instruments Inc. (NASDAQ: MKSI) provides instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of manufacturing processes in the United States and internationally.

MKS offers pressure measurement and control products used for various pressure ranges and accuracies; materials delivery products, including gas flow measurement products and vacuum valves; automation and control products, such as automation platforms, programmable automation controllers, temperature controllers and software solutions for use in automation, I/O and distributed programmable I/O, gateways and connectivity products; and vacuum products comprising vacuum containment components, effluent management subsystems and custom stainless steel chambers, vessels and pharmaceutical process equipment hardware and housings.

Stifel feels the increase in Applied Material’s display equipment business will have positive implications for MKS as it supplies many key subsystems for Applied’s display tools. In addition, MKS acquired Newport last year and added the company’s iconic Spectra-Physics laser brand to its product lineup.

MKS shareholders receive a 0.85% dividend. Stifel has set its price target at $98, and the consensus target is $94.57. Shares closed Thursday at $84.90.

Teradyne

This lesser known industry leader could also have solid upside potential. Teradyne Inc. (NYSE: TER) provides automatic test equipment serving semiconductors, printed circuit board assemblies and other segments, such as automotive and broadband. Its products deliver a competitive advantage to semiconductor, electronics, automotive and network systems companies. Teradyne operates in three segments: Semiconductor Test Systems, Assembly Test Systems and Other Test Systems.

The analysts like this company as a somewhat ancillary play and cited the growing emerging robotics silo as more of a reason to own the shares than the fundamentals related to wafer fab equipment. The company also consistently buys back its stock.

Shareholders receive just a 0.8% dividend. The Stifel price target is $39. The posted consensus target is $38.33, and shares closed Thursday at $35.65



A recent surge in the value of the yuan has blindsided Wall St and stands to complicate China's efforts to simultaneously manage a slowdown in growth while deepening the ties to global markets. The yuan jumped to its strongest level in 16 months this week, bringing its total fain versus the dollar to 7% in 2017, more than recouping all of its decline last year. Last month alone, the yuan soared 2% against the dollar, notching its biggest monthly advance since July 2015. Traders and analysts attribute the yuan's changing fortunes back to the dollar's softness and to the Chinese central bank's stepped up controls over the yuan through an altered mechanism to guide its value, which had been reduced expectations for it to weaken and prodded companies that had been hording dollars to convert them into the local currency

SEMICONDUCTORS

​SALE

​U.S. consumer spending dipped by 0.21% in August, the largest drop of any month so far this year, according to Friday morning’s report from the U.S. Census Bureau on estimated retail sales. A poll of economists had forecast that retail sales would be flat compared with sales in August 2016.

Sales of motor vehicles dropped 1.6% month over month from July as auto sales continued to struggle. Car sales totaled $105.14 billion last month on an unadjusted basis, up from $102.36 billion in July and up from $103.21 billion in August 2016.

Adjusted for seasonal variations and other items, total retail sales for the month came in at $474.8 billion, down 0.21% month over month and 3.2% above the August 2016 total. Total sales for the three-month period between June and August rose 3.2% compared with last year.

Retail trade sales fell 0.3% month over month but rose 3.3% year over year. Nonstore retail sales rose 8.4% year over year. Month over month, however, nonstore retail sales fell 1.1%.

Gasoline station sales rose 2.5% month over month and are up 6.4% year over year. The eight-month total for gas stations is up 8.1% year over year, due largely to higher pump prices.

Electronics stores posted a sales decline of 0.7% month over month and a year-over-year decline of 3.5% in sales. Department stores posted a month-over-month sales decrease of 0.1% and a year-over-year decline of 0.8%.

Sales were stronger across a broad range of products. Furniture and home furnishing stores saw a rise of 0.4% month over month and 7.5% year over year in August. Grocery store sale were up 0.3% month over month and up 1.9% year over year.

Building materials and garden equipment and supplies sales dipped 0.5% month over month but are up 7.5% year over year. Food and drink establishments posted a gain of 0.3% month over month and sales are up 2.3% year over year.

​RETAIL SALES WEAK

$100 BILLION IN DAMAGES

YUAN'S CLIMB CHALLENGES BEIJING

​Can North Korea actually destroy Tokyo, with a population of almost 13 million people, in a nuclear holocaust?

It sounds like the stuff of a Cold War novel from a generation ago — a desperate rogue nation teetering on economic collapse that is bristling with nuclear weapons controlled by an unstable despot.

Pyongyang certainly has done enough saber-rattling to strike fear among America’s Asian allies — South Korea, Japan and the Philippines. The variables in this doomsday scenario revolve around the number of nuclear weapons North Korea has, if the weapons can be miniaturized and placed on missiles, and whether the United States can shoot them down.

When 24/7 Wall St. recently listed the countries with the most nuclear weapons, North Korea ranked ninth.

Given that North Korea is a totalitarian nation and all information is controlled by the state, it is unclear how many nuclear weapons it has. A recent story in Al Jazeera said U.S. officials estimate Pyongyang has 60 nuclear weapons, whereas independent experts estimate that the hermit kingdom may have produced up to 20 nuclear bombs by the end of 2016.

In September 2016, Siegfried Hecker of Johns Hopkins University estimated that North Korea produced enough highly enriched uranium to make six additional nuclear bombs a year. Hecker had toured North Korea’s main Yongbyon nuclear facility in 2010.

Two years ago, North Korea announced that it has the capability of miniaturizing nuclear weapons, a claim the United States disputed.

In January 2016, North Korea said it successfully conducted a hydrogen bomb test, and the United States said it could not verify if the test was successful.

This past July, North Korea claimed it conducted its first successful test of an intercontinental ballistic missile (ICBM). The Hwasong-14, North Korea’s furthest-reaching ICBM, could theoretically travel more than 6,400 miles. Pyongyang is less than 800 miles from Tokyo. When the missile was test-launched, it flew for about 45 minutes before landing in the Sea of Japan.

Last month, Pyongyang conducted its sixth test of a nuclear weapon, causing a 6.3-magnitude seismic event, as measured by the United States Geological Survey. Pyongyang claims the device is a hydrogen bomb that could be mounted on an intercontinental missile. A nuclear weapons monitoring group described the weapon as up to eight times stronger than the bomb dropped in Hiroshima in 1945.

The United States, South Korea and Japan are equipped with anti-missile systems that could intercept and destroy ballistic missiles fired from North Korea, although missile intercept failures are common.

South Korea has six Terminal High-Altitude Area Defence (THAAD) batteries arrayed in Seongju, south of Seoul, and Japan also is equipped with the Patriot and the Aegis anti-ballistic missile systems.

Tokyo has seen its share of destruction. Japan’s largest city was leveled by an earthquake in 1923, and the Allies destroyed the city by conventional bombing during World War II. Also, the United States dropped nuclear bombs on the Japanese cities of Hiroshima and Nagasaki, which led to the Japanese surrender that ended World War II.

Tokyo’s metropolitan area has more than 35 million residents, the largest in the world. Tokyo comprises 1,361 square miles.

Given the uncertainty of its nuclear stockpile, questions regarding its ability to deliver a nuclear strike and the allies’ ability to bring down missiles launched at Japan, the likelihood of North Korea hitting Tokyo with nuclear missiles is remote.

​Tenet Healthcare Corp. (NYSE: THC) watched its shares make a handy gain early on Thursday after The Wall Street Journal announced that it was exploring the possibility of a sale. According to the report, Tenet is taking on financial advisors to look at a range of options and arrange meetings with potential buyers.

Prior to the stock jumping on Thursday, the market cap was roughly $1.6 billion, but this might not be an accurate price target. The company has a massive amount of debt, about $15 million. At the same time, Tenet posted revenues of $19.62 billion in the past year, which gives it an enterprise value of roughly $20 billion.

A few suitors that come to mind include HCA Healthcare Inc. (NYSE: HCA), Community Health Systems Inc. (NYSE: CYH) or even UnitedHealth Group Inc. (NYSE: UNH).

Tenet currently operates 77 acute-care hospitals, 21 short-stay hospitals and over 460 outpatient centers.

It is worth pointing out that these sales talks are coming just two weeks after Tenet’s CEO Trevor Fetter announced that he would be stepping down in March 2018. Fetter had been with the company since 1995 and has acted as CEO since 2003.

Problems with the company also have led to the resignation of two Tenet board members from Glenview Capital Management, Tenet’s largest shareholder at 17.74%, as of the end of June 2017.

The combined damage of hurricanes Harvey and Irma has been pegged above $100 billion, which makes them among the most expensive disasters in American history. Most of the damage was in Texas and Florida. Some of it was in big cities. Real estate values in these areas will be pummeled and may not recover for years.

The most obvious effect on home values involves those that have been badly flooded or damaged by the wind. Many will be rebuilt, but the timing of that, neighborhood by neighborhood, will be uneven. People are not going to want to move into areas that are partially rebuilt and where construction could go on indefinitely. These areas also may have damaged infrastructure and schools.

The other sections of Texas and Florida that will have real estate value problems are those which may have been only slightly damaged, or not damaged at all, but sit in areas that the storms have shown are likely to flood or suffer from high winds in another big storm.

It is not hard to peg which areas of Florida and Texas will be most vulnerable. Galveston and Corpus Christi are more likely to be obliterated by large hurricanes than the balance of Texas because they sit directly in low-lying areas along the Gulf of Mexico. They had extensive damage again because of Harvey.

In Florida, large areas in Jacksonville were badly damaged by the storm surge from Irma. Homes on the St. John’s River took much of brunt of the storm. The river reached a level last recorded in 1864.

Homes that sit in low-lying areas on the Gulf of Mexico in Tampa, Naples and other cities were flooded. The residents have to be concerned whether hurricanes are likely to come more often as ocean temperatures rise. Some of these people will move, at least a few miles inland. This will leave the demand for homes in their neighborhoods at levels low enough to sharply erode prices.

Tampa and Miami are part of the 20 cities included in the S&P Corelogic Case Shiller real estate prices indexes. Both have made strong comebacks from the Florida real estate collapse that accompanied the Great Recession. The Case Shiller figures for these two cities almost certainly will fall in the next several months. Other areas battered by the two hurricanes will fall with them.I'm interested in the  Newsletter
 


NUCLEAR THREAT