For Immediate Release
Chicago, IL – August 4, 2020 – Zacks Equity Research Shares of Lam Research Corporation LRCX as the Bull of the Day, Chico’s FAS, Inc. CHS asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on IAMGOLD Corporation IAG, Limelight Networks, Inc. LLNW and Unicharm Corporation UNICY.
Here is a synopsis of all five stocks:
Bull of the Day:
LAM Research is on the ground floor of hardware innovation and is a critical component of the 4th industrial revolution, which is only beginning to heat up. Lam is a leading supplier of etching, deposition, and cleaning equipment for the semiconductor industry.
Lam knocked its June quarter earnings out of the park last week and analysts have been continuing to raise price targets and EPS estimates pushing LRCX into a Zacks Rank #1 (Strong Buy).
The Business
This enterprise is focused on driving innovation to produce the most cutting-edge integrated circuits, with a focus on sustainability. Lam is the market share leader of the niche etching and deposition markets for digital chip production and innovation.
Lam drives its topline in 3 semiconductor markets: memory, foundry, and logic/integrated device manufacturing.
The company’s customers include the largest and most trusted semiconductor businesses like Samsung and Taiwan Semiconductor. Each of which is driving the next wave of digitalization. With 5 years of digitalization being seen in the last 5 months, these businesses’ swelling demand is just beginning to proliferate.
Lam is well-positioned to take off from the impending 4th Industrial Revolution, which has just been catapulted forward by the COVID-crisis.
COVID-Impact
In the enterprise’s quarterly report last week, CEO Tim Archer, exemplified his optimism about the future of the business:
“Lam delivered strong financial results in the June quarter despite tremendous global health, macroeconomic, and geopolitical uncertainty. This is a clear demonstration of our Company’s ability to adapt and execute in a period of unprecedented challenges. With an outlook for continued industry growth, we are in an excellent position to outperform as our investments in disruptive innovation and differentiated customer support gain momentum.”
Lam was also able to create a $25 million COVID-19 Relief Fund for employees and its communities, further developing its social impact. This illustrated that the business had the liquidity to meet growing demand and provide funding to support this world-changing pandemic, further illuminating its humanity improving vision.
Analysts are anticipating massive top and bottom-line growth for its fiscal year ahead (ending in June of 2021), after reporting exceeding robust financials for fiscal 2020 last week, despite the short-term supply chain and logistic issues related to COVID-19. Fiscal 2021 (ending June 2021) is anticipated to be a big year for Lam with analysts’ estimating double-digit sales and earnings growth.
The firm is substantially exposed to Asia, with over 80% of its sales coming from China, Korea, Taiwan, and Japan. This creates some geopolitical risk, but the electronic markets in these regions are exploding, positioning LAM Research to ride this growth wave.
Semiconductors are cyclical by nature, but the 5G revolution and a resurgence in hyperscale computing are pushing these stocks to the stratosphere. LRCX is riding all-time highs, and the rally still looks strong. Many analysts have increased their price targets.
LAM Research has a remarkably healthy balance sheet with $7 billion in cash & equivalents on hand (increasing $1.4 billion from the prior quarter), which more than doubles its current liabilities. This robust liquidity combined with its consistent cash-flows gives the firm a sizable amount of financial elasticity for internal and external growth.
Final Thoughts
There are some correction related risks with LRCX at its relatively frothy valuations, but if you can stomach potential short-term volatility, I would not hesitate to pull the trigger on this long-term semiconductor winner.
Bear of the Day:
The retail apocalypse is running rampant amid this global pandemic, and no brick-and-mortar business is safe. Chico’s is one such business that has not been immune to the COVID driven economic downturn. CHS has lost over 92% of its value in the past 5 years, and it continues to disappoint investors with a 66% breakdown so far this year. Sell-side analysts are becoming more pessimistic about this stock and continue to lower expectations pushing this stock down to a Zacks Rank #5 (Strong Sell).
The Business
Chico’s is a women’s fashion brand that began out of Sanibel, Florida 36 years ago. The company operates three separate retailers, branded Chico’s, White House Black Market, and Soma.
The peak of this retailer’s performance was back in 2014 but has since fallen prey to the changing digital commerce landscape. Amazon and the other large online retailers have left less versatile firms like Chico’s in the dust. Chico’s operated 1,547 stores in 2014 and has since closed 129 stores and expects to close another 250 over the next three years.
This once women’s fashion icon’s inability to adapt to the digitalizing world has led to a sales decline in the past 18 out of 19 quarters and shareholders have suffered. Chico’s revenue decline is expected to continue in the years to come.
Chico’s bottom line has flipped negative, and its losses are accelerating seemingly every quarter. The business is quickly running out money, and this pandemic may be the straw that broke the camel’s back for Chico’s.
The best thing that could happen to Chico’s at this point is an acquisition. Otherwise, I see this archaic enterprise fizzling into bankruptcy, and that is what investors & traders have priced in.
CHS is soon to be a penny stock trading at $1.25. This low share price causes accentuated volatility, adding more risk to any investor holding these shares.
Take Away
The retail apocalypse is real, and the COVID-crisis is pushing brick-and-mortar retailers that haven’t adapted to the evolving consumer out of the market. Chico’s is just another domino teetering, ready to fall. There are significant systemic issues with this company, and I would not put any position on this stock at this time.
Additional content:
3 Stocks Under $10 to Buy Now as August Starts Hot
U.S. stocks jumped to start August, with big-tech continuing to showcase its strength. Zoom, Microsoft, Apple and other familiar coronavirus standouts were some of Monday’s top gainers through morning trading.
The positivity came after Facebook, Amazon and Apple all flexed their muscles last Thursday, proving once again that they are some of the best bets during the pandemic-induced downturn. Meanwhile, Wall Street was likely pleased to see that the U.S. reported its smallest daily increase in new Covid-19 cases in almost a month.
Alongside the slow return to something close to normal around the world, there are positive signs from factories. This helps investors look beyond the last week’s rough second quarter GDP data from the U.S. and Germany. And it’s always worth remembering that Wall Street knew things were going to be bad.
Plus, it’s always looking ahead, which might bode well for the continued market climb. With interest rates so low, the need to chase returns remains and don’t fight the Fed is a mantra that will likely be with us for some time.
That said, let’s start the month of August off by looking for stocks that offer growth during the economic uncertainty and are also cheap—trading under $10 per share.
Iamgold Corporation
Prior Close: $4.98 USD
Gold has surged amid all of the economic turmoil and Goldman Sachs recently raised its 12-month forecast from $2,000 an ounce to $2,300, citing concerns about the U.S. dollar’s role as the global reserve currency and more. Therefore, it might be a good idea for investors to add a gold play to their portfolios. Iamgold is a mid-tier mining firm with three gold mines on three continents, along with exploration projects. IAG shares have climbed 120% during the market’s comeback to crush the S&P 500’s 45% and its industry’s 85% average.
IAG has seen a bit of a pullback recently after the outsized run and it rests about 27% off its nearly $7 per share highs from 2017. Alongside its under $5 price tag, Iamgold trades at a discount to its highly-ranked industry in terms of forward 12-month sales. Looking ahead, our Zacks estimates call for IAG’s fiscal 2020 revenue to jump 11%, with FY21 expected to come in another 16% higher to reach $1.36 billion.
The gold miner’s bottom-line outlook appears even more impressive, with it expected to swing from an adjusted loss of -$0.04 a share last year to +$0.26 in FY20. IAG’s adjusted FY21 EPS figure is then expected to climb another 60% higher. Iamgold’s outlook is rather impressive, especially amid the current economic conditions. Iamgold is Zacks Rank #2 (Buy) that’s set to report its Q2 results after the closing bell on Wednesday, August 5.
Limelight Networks
Prior Close: $6.27 USD
Limelight provides digital content delivery, video, cloud security, and edge computing services. The Scottsdale, Arizona-based firm allows its customers to deliver streaming video and other digital content to “any device, anywhere.” Limelight’s offerings are geared toward industries from media and broadcasting to gaming, which makes it an attractive coronavirus play and possible longer-term investment. LLNW topped our Q2 earnings and revenue estimates on July 20, with revenue up 28%, while it swung from an adjusted loss to +$0.03 per share.
Limelight’s strong quarter helped executives raise the firm’s full-year sales guidance, which is no easy task at the moment. Our Zacks estimates now call for the company’s fiscal 2020 revenue to jump 18%, with FY21 expected to come in another 10% higher. On top of that, Limelight is expected to soar from an adjusted loss of -$0.02 in FY19 to +$0.07 a share in FY20, with FY21 projected jump another 81% higher to $0.13 per share.
Limelight’s positive post-release earnings revisions help it earn a Zacks Rank #2 (Buy) at the moment. LLNW has now crushed our bottom-line estimates in the past two quarters and it rocks a “B” grade for Growth in our Style Scores system. Shares of LLNW are down around 18% since it reported, as some investors take home profits on the stock that has skyrocketed 150% from $2.50 a share 12 months ago to its current price. Limelight stock popped 3% Monday morning, in a sign of a possible quick comeback. And LLNW trades at a significant discount to its industry, at 3.1X forward 12-month sales vs. 7.1X.
Unicharm Corp
Prior Close: $9.02 USD
Unicharm operates a rather recession-proof business, which there should always be room for in a portfolio. The Tokyo, Japan-headquartered firm is a consumer goods giant that sells everything from diapers and feminine care to cleaning products and even face masks. UNICY stock is up 60% in the last year and 32% in 2020. This is part of a strong and steady climb over the last several years.
Unicharm’s revenue is projected to jump 7% this year and another 4% next year. Meanwhile, its adjusted earnings are expected to pop 50% and 7%, respectively during this same stretch. UNICY’s positive earnings revisions help it earn a Zacks Rank #2 (Buy) right now, alongside its “A” grade for Growth in our Style Scores system. Unicharm also pays a dividend.
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