Applied Materials, Inc. (AMAT), ASM International NV (ADR) (ASMI): These Semiconductor Equipment Companies Deserve Your Attention

KLA-Tencor Corporation (NASDAQ:KLAC) is the only pure-play provider of tools for the defect inspection and metrology markets, two segments from which the company derives most (79%) of its revenue — another 18% comes from its services business. This dominant position in a market niche provides it with a wide moat and strong competitive advantage that should help it keep its peers at bay for a few more years, at least.

Going forward, several factors make KLA-Tencor Corporation (NASDAQ:KLAC) an alluring investment. Given the fact that at any given time, companies want to reduce their expenses, and KLA-Tencor Corporation (NASDAQ:KLAC)’s products lower its customers’ production costs, the firm is considerably less susceptible to the cyclicality of the industry than most of its competitors. Furthermore, as demand for consumer electronics continues to increase, the company’s solutions to ameliorate manufacturing efficiencies will accompany (Zacks). As this trend is expected to continue for a few years, the long-term prospects look particularly encouraging for the firm.

With a strong balance sheet that has almost $2 billion in net cash, the firm can comfortably enhance its shareholders’ value by yielding 2.72% of the current stock price in the form of dividends, while pursuing periodic stock repurchases. Trading at 15 times its earnings, about one-third of the industry average, this stock looks quite undervalued and should be added to your long-term portfolio.

Bottom line

Although Applied Materials is the semiconductor industry behemoth and offers attractive growth prospects and a juicy dividend yield, smaller companies, such as KLA-Tencor Corporation (NASDAQ:KLAC) and ASM, stand as more attractive investment opportunities. Strong competitive advantages make these companies great options for your long-term portfolio; and their generous dividend yields will certainly keep you happy in the meantime.

Damian Illia has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article These Semiconductor Equipment Companies Deserve Your Attention originally appeared on Fool.com is written by Damian Illia.

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