1 Reason to Sell AMAT and 1 Stock to Buy Instead

The past six months have been a windfall for Applied Materials’s shareholders. The company’s stock price has jumped 74.6%, hitting $326.79 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Applied Materials, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is Applied Materials Not Exciting?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Applied Materials. Here is one reason we avoid AMAT and a stock we'd rather own.

Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Applied Materials’s revenue to rise by 2.4%, close to its 10.5% annualized growth for the past five years. This projection doesn't excite us and implies its newer products and services will not accelerate its top-line performance yet.

Final Judgment

Applied Materials isn’t a terrible business, but it isn’t one of our picks. After the recent rally, the stock trades at 33× forward P/E (or $326.79 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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