Easy to understand versus hard to understand, that is the question.
When Johnson & Johnson (JNJ) has a good quarter we get it. The comparisons are easy, not just quarter over quarter but category after category. Grooming, hair care, baby care, we get it.
Same with PepsiCo (PEP) : snacks, beverages. We know Frito Lay. Pepsi. The toughest to figure out might be Mountain Dew growth or Bubly. Or this morning, when Southwest (LUV) reports its seat miles versus the rest of the industry we can tell who's doing better than others.
But then we get to semis and we stumble. What part of our computer is DRAM. Are we looking at NAND or is it something we don't interact with. Does that company have too much cellphone exposure. Is this one too dependent on Apple (AAPL) which won't let suppliers talk about the big dog?
And then, the hardest of all, semiconductor capital equipment. We know we want smaller, faster, better devices. We need them for autos, wearables, tablets and smart phones. We keep hearing that there is a shortage of factory equipment to make these. We know that we need wafer fabrication equipment to do so. Therefore, we know we need Lam Research (LRCX) which reported last night with a stock that, after reported, rallied 30 points only to give it all back and then some this morning as part of a pullback in tech.
I have been a fan of Lam ever since it bought Novellus, the terrific company built by Rick Hill that made our viewers so much money first when Rick bought back a huge slug of stock and then when he sold to Lam. Since then the combination has been a juggernaut, a juggernaut that's now run by Tim Archer, a Novellus man.
But here's the problem. Unless you are in the weeds for wafer fabrication you really don't know how they are doing. Their conference call was a little opaque, giving us the usual story about wearables and internet of things and devices in general. We all know that these products are in growth mode and using more and more semis that are faster and use less power.
We know this: when you hear about chip shortage you need to think of Lam. The world needs Lam to add to capacity as fast as possible. More important, given the incredible advances the semi companies are making, you can count on Lam to have strong earnings for years to come because this is the ultimate secular growth story. We see devices everywhere and they are filled with chips. You can't add more chips without Lam, Avino Silver & Gold (ASM) , Applied Materials (AMAT) and KLA (KLAC) .
Right now, today, there is a huge debate raging about whether this economy is at peak performance and therefore the red hot industrials should be de-emphasized... they have moved enough and now reflect all that's good in this economy. That's why a Dow (DOW) can report a magnificent quarter and its stock goes down. That's why we get a report today about how Deere (DE) is at peak earnings. That's why we see housing stocks getting hit and all that goes into a house.
I totally reject this theory. I think the economy can shock to the upside and many of our companies have terrific business in Europe which hasn't turned at all yet because of the virus.
But some companies simply don't need a strong economy at all. They just need the pattern of history to continue, with the miniaturization and electronification and digitization coming to all the things we use in our daily life. In the end that secular growth is what Lam is all about and if you think of it like that rather than what part of the semi food chain it helps along, you will know to buy not sell this stock when it goes down as it's doing today.