Versum Leveraged To Chip Volume Growth And Innovation

On the whole, I like pick-and-shovel plays and Versum Materials (VSM) is a good example in the chip space, as this producer of specialty chemicals, gases, and other materials is heavily leveraged to ongoing growth in chip production volume and ever-increasing chip design complexity. Although Versum has some modest exposure to equipment and some volume risk from improving yields, the general outlook for Versum is healthy as a critical supplier to fabs.

Relative to Entegris (ENTG), though, I’m not quite as interested in the value proposition offered by these shares. I do think Versum is modestly undervalued, and it’s more of a play on direct chemical/material demand, but expectations might still be a little high for 2019 and I still see ongoing risk of the market being indiscriminate in selling off semiconductor-related names if (“when”, in my view) the outlook for equipment demand in 2019 worsens.

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Versum Leveraged To Chip Volume Growth And Innovation

Entegris Not Getting Its Due For A Differentiated Exposure To Semiconductor Markets

Electrochemical, filtration, and material handling company Entegris (ENTG) has had a rough year, as has competitor/peer Versum Materials (VSM), though investors in semiconductor equipment stocks like AEIS (AEIS) and VAT (OTCPK:VACNY) may not exactly be overflowing with sympathy (they've had it worse). Although Entegris is much more leveraged to wafer starts than equipment orders, investors seem to have bailed out ahead of this memory-led decline in equipment orders.

Although Entegris has some exposure to equipment trends and wafer starts may not be so strong next year, I think these shares are starting to look pretty interesting. Margins should continue to head higher (driving a better EV/revenue multiple), and I see meaningful room for FCF margin expansion as Entegris leverages ongoing growth in chip production and ever-increasing chip complexity. My biggest concern is perceptual, with the risk that investors look at the worsening outlook for equipment and high lead times and just bail on all things chip-related.

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Entegris Not Getting Its Due For A Differentiated Exposure To Semiconductor Markets

Big Differences Of Opinion On MEMC

An old rule of thumb says it is difficult to make any real money from names where the analysts are already all in agreement. The idea is that everybody already knows the story, and the only way to profit is to be contrarian (and right!). So, what should investors make of MEMC Electronic Materials (NYSE: WFR)? Analysts are all over the place on this name, and this seems like a classic case where an investor with better information (or a luckier guess) could make some real money.

Third Quarter Results - Better But Not Better Enough
In a vacuum, there would seem to be little wrong with the company's third quarter. Revenue rose 62% from last year and 12% from the Q2, as solar materials were up strongly and semiconductor materials demand was positive as well. Nevertheless, the company was about 6% shy of analyst estimates, and there is ample skepticism about the near-term outlook for demand in both semiconductors and solar energy.

The link below leads to the full piece:
http://stocks.investopedia.com/stock-analysis/2010/Big-Differences-Of-Opinion-On-MEMC-WFR-ENTG-CCMP-ATMI-RNWEY-SUOPY-STP1103.aspx