Analysts upped their target prices for ASML Holding (ASML), Europe’s biggest semiconductor equipment maker, after the company reported first quarter earnings of 68 cents a share (2 cents above consensus projections) on April 18.

Trouble is, in my opinion, that the new higher targets are for just $55 a share or so and with the stock trading at $50.05 today at 1:15 p.m. New York time I don’t think that’s enough of an upside given the uncertainties in equipment orders from ASML’s biggest customers in the coming quarters. ASML Holding is a member of my Jubak’s’ Picks 12-18 month portfolio http://jubakam.com/portfolios/ . I’ll be selling the shares out of that portfolio today with a 39.4% gain since I added it to the portfolio on April 20, 2010.

You should think of ASML shares as victims of their own success. The stock was up 23.6% for 2012 as of the close on April 27. And ASML shares are up 42% since the $35.85 low on November 25, 2011. And on April 19 the stock hit a 12-year high.

(Please note that ASML is scheduled to pay a dividend of 0.46 euros a share (roughly 60 cents) on May 15 to shareholders of record on May 2. If you sell today, you will still get the dividend.)

It’s not that ASML had bad things to say about the rest of 2012. In fact the company raised its revenue guidance for second quarter.

But the company didn’t give guidance for second quarter earnings on April 18 and I think that reflects a problem for holders of ASML. Because of a steady consolidation in the number of companies making chips—more companies (Apple and Qualcomm to name two) contract their chip making to fewer and fewer big fabs run by the likes of Samsung and Taiwan Semiconductor Manufacturing (TSM). That means the equipment orders to companies like ASML are bigger and lumpier. Taiwan Semiconductor recently increased its capital budget for 2012 to $8 billion to $8.5 billion from $6 billion. That’s certainly good news for companies such as ASML, KLA Tencor (KLAC), or Lam Research (LAM). But given recent news on component shortages from chip consumers such as Apple (AAPL) and Qualcomm (QCOM), it’s also clear that the exact rate of ramp up for new manufacturing lines is uncertain. Working backward that suggests that the exact timing of orders to equipment makers may be uncertain too.

I don’t doubt the reality of the increase in capital spending from chip manufacturers that the sector is seeing. I just worry about the danger of a big order slipping from one quarter to another. That would clobber the shares of a company like ASML or Lam Research and at the current price for ASML shares I just don’t think investors have enough potential reward to take that risk.

I’m much rather revisit this stock in August or September when, even if shares haven’t pulled back in price, we’re likely to have more visibility on 2012 orders. And that would lower the risk in the shares.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of ASML Holding as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

“I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

I don’t have the foggiest idea if Abraham Maslow, the psychologist who authored that quote back in 1966, knew anything about investing.

But from painful personal experience I’d propose an investing version that goes like this: “When you only know one group of stock, it’s tempting to see that group as the way to succeed in every market.”

In 2011 I think it’s going to be very hard to make much money in the stock market unless you learn a new stock group, one that you’re possibly uncomfortable with, and one that’s not the commodities or technology stocks that you’re familiar with from the last two huge rallies.

You’re going to have to learn something about industrial and manufacturing stocks. That’s the stock group you’ll need in 2011—or at least in the first half of 2011.

(My Dad told me his own version of Maslow’s quote one day when he handed me a pipe wrench and said “When every problem is a nail, you should use just about anything you have as a hammer.” But I don’t know what the investing wisdom in that might be.)

In 1999, for example, anyone who knew technology stocks hammered the stock market for about a 100% gain. Or more. Shares of Cisco Systems (CSCO) climbed 131% that year.

Try that in 2007, a huge rally year like 1999 that preceded a crash, and you would have been left crying on your router. Shares of Cisco dropped that year by about 1%. Not every technology stock did that badly in 2007. IBM (IBM) was up 13%. Microsoft (MSFT) advanced 21%. Oracle (ORCL) nailed 32%. Intel (INTC) 34%.

But compare those gains to those delivered by a completely different stock group. General purpose mining stock BHP Billiton (BHP) was up 79% in 2007. And BHP Billiton would have been a lagging mining pick that year. Brazil’s iron ore giant Vale (VALE) climbed 122%. Potash of Saskatchewan (POT) soared 202%.

Yep. In 2007 it sure would have paid off to abandon what you know—technology stocks–and learn an unfamiliar group—commodity producers.

In 2011, I’d argue, that group you need to know is industrials. Read more

The semiconductor equipment race is heating up even faster than I laid out in my January 14 post on Intel http://jubakpicks.com/2011/01/18/the-chip-war-thats-bad-for-intel-is-good-for-the-shares-of-chip-equipment-makers/

Samsung Electronics, perhaps Intel’s biggest competitor at the moment, and Taiwan Semiconductor Manufacturing (TSM), an Intel partner as well as a manufacturer for some Intel competitors, have announced big increases in their capital spending plans in the last few days as they move to keep pace with Intel and Advanced Micro Devices (AMD) spinoff Globalfoundaries in the battle to win share in the market for the chips that will run tablet computers and smart phones.

Spending on semiconductor manufacturing equipment will climb at least 10% in 2011 to $42.2 billion from $38.4 billion spent in 2010, according to technology research house Gartner. Read more

The chip war that’s bad for Intel is good for the shares of chip equipment makers

The same logic that has pushed shares of chipmaker Intel (INTC) down despite record earnings and revenue is pushing up the shares of semiconductor equipment makers

Look what happened on January 14, the day after Intel announced its earnings.

For the day Intel fell by 1%. But shares of chip equipment makers Applied Materials (AMAT) were up 7.5%%, Novellus Systems (NVLS) up 12.3%, KLA Tencor (KLAC) up 3.4%, and ASML Holding (ASML) up 9.5%.

How come?

Investors figure, rightly in my opinion, that Intel is in the early stages of a very expensive war to gain traction in the market for the chips that run smart phones and tablet computers. (More on Intel’s current position and strategy in my January 11 sell (http://jubakpicks.com/2011/01/12/sell-intel-intc/ ) We all know how this works from watching Intel demolish the competition in the market for PC chips. Intel will build factory after factory with each generation producing chips that are simultaneously smaller and more powerful as the company uses new technology and new equipment to pack circuits ever closer together.

That was tremendously expensive when the competition was just a relatively small company such as Advanced Micro Devices (AMD). Intel’s pockets were so much deeper that it eventually forced AMD out of the chip manufacturing business completely. (Advanced Micro Devices spun off its chip manufacturing into a stand-alone business.)

This time around the war will be much more expensive because the competition includes equally deep-pocketed companies such as Samsung.

This time we’re talking multiple generations of chips built in multiple generations of new factories using lots and lots of the most expensive new chip making machinery.

The worry is that Intel’s margins will suffer while the war goes on. But you can see why it’s logical to think that the big near-term winner of Intel’s war is going to be the companies that make the chip equipment.

Right now the sector looks over-extended but the war isn’t going to be over in a day or a month. If you’re already in, I’d hold on though any pullback and add to positions. If you’ve been caught on the sidelines, use any dip to get in. My two favorites in the sector are Applied Materials and ASML Holding.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Applied Materials, ASML Holding, and Intel as of the end of November. For a full list of the stocks in the fund as of the end of November see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/.  I’ll have the fund’s portfolio as of the end of December posted in a few days.

Update ASML Holding (ASML)

No real surprise that shares of ASML Holding (ASML) have paused in the last few days.

European stocks—and ASML is headquartered in Veldhoven Netherlands, have been under pressure from the renewal of the euro debt crisis. Cisco Systems (CSCO) disappointing guidance on November 10 raised doubts about the entire technology sector. And with global markets in a retreat, there’s been a wave of profit taking. ASML certainly had profits to take: the stock was up 41% from its August 31 low to its November 4 high.

But all these negatives are really external to the company itself—and to the recovery in its core markets in my opinion.

A reminder: On October 13 ASML Holdings announced third quarter earnings of 0.61 euros a share. That beat Wall Street forecasts by 0.07 euros. Revenue for the quarter climbed 112% from the third quarter of 2009.

Yes, that’s right 112%. Read more