"Given the strong move that these stocks have had, one has to be circumspect on how you put fresh money in the group." Today's upgrades were Walker's first changes on Applied Materials and Novellus since October 2000, when he cut them to "hold" as orders for equipment peaked. The analyst's skepticism paid off for investors as the Philadelphia index dropped 45 percent to a 2 1/2-year low on Oct. 2.
While the stocks are fully valued based on next year's earnings outlook, Walker said shares will climb based on profit forecasts for 2003.
"Rather than being too cute and wait for a pullback that may or may not come, we have stayed true to our discipline and called the fundamentals," he said.
Applied Materials sells for more than 200 times projected profits for the next 12 months, according to Thomson Financial/First Call. The S&P 500 trades at 25.3 times forecasts.
Picchi said Walker's report was a topic of discussion among Federated money managers and analysts. While they agreed with Walker's company-specific analysis, they didn't share his optimism for the industry.
"From what I can see, there was not much that was really new in the call," said Picchi, whose firm holds Novellus and Applied Materials shares. "It's just the case of an analyst panicking."
RSS