This Trade Targets a Potential 15% Return by October

KLA-Tencor Corp (NASDAQ:KLAC) — This company is the world’s leading maker of yield-monitoring and process-control systems for the semiconductor industry.

More advanced semiconductor technology demands more advanced technology nodes and a need to invest in KLAC’s products.

Flash memory spending remains high, and Standard & Poor’s anticipates that the trend will remain that way for the foreseeable future.

KLAC is on a June fiscal year, and S&P projects gross margins in the 60% range for FY 2017 and FY 2018.

They expect KLA Tencor to produce earnings per share of $5.88 in FY 2017 and $6.28 in FY 2018 and have a favorable view of KLAC’s future margins compared to its peers.

S&P’s target price of $115 is based on a price-to-earnings ratio of 18.3X FY 2018’s expected operating earnings of $6.28.

KLAC stock beat Q4 2016 estimates, reporting $1.62 vs. an expectation of $1.55. Sales rose 28%, and that too was better than forecast. KLAC pays a dividend of $2.16 for a dividend yield of 2.1%.

The current advance by KLAC stock started in December 2016 in the high $70’s. The stock has regularly established new highs, trading in a narrow bull channel with a spread from low to high averaging 8 to 10 points. However, a recent high late in April penetrated the bullish resistance line, jumping to $104.22.

The current initial support is at the 20-day moving average at about $101 and then the more important major support line at $100. Thus, traders should try to buy KLAC at $100 with an intermediate trading objective of $115 for a proposed gain of 15% by October.

— Sam Collins, Trade of the Day

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Source: Investor Place



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