Goldman Sachs analyst Toshiya Hari turned bullish on the semiconductor capital equipment sector that is headed by Applied Materials (AMAT) - Get Report , Lam Research (LRCX) - Get Report and KLA (KLAC) - Get Report .
Hari upgraded Applied Materials and Lam Research to buy from neutral, while KLA was upgraded to neutral from sell. Applied Materials was also added to Goldman Sachs 'Conviction Buy' list.
Hari believes that disciplined supply-side actions like capex cuts and production adjustment, coupled with supply-side disruptions that will drive improvement in memory supply and demand, are catalysts for the industry.
"Not only have the memory producers reduced capex over the last 4 quarters, but they have also made adjustments to their factory utilization rates to combat the on-going challenging environment, and while the memory WFE market is likely to remain weak in 2H19, we now expect fundamentals to improve earlier than our prior expectations," Hari wrote.
Of the three stocks Hari upgraded, his top pick is Applied Materials, with a $56 price target that represents a potential 17% upside from the stock's closing price Friday of $47.81.
Applied Materials was up 5.08% to $50.24, while Lam Research was up 3.86% to $206.20 and KLA was rising 2.1% to $134.73.
Lam Research is a holding in Jim Cramer's Action Alerts PLUS charitable trust.