Applied Materials Looks Like a Wise Buy After Quarterly Earnings Beat

 NEW YORK (TheStreet) -- With the market now trading a near record highs, you'll have to roll the dice to find a tech stock with much runway for future share price growth. But it doesn't have to be a gamble, if you know where to look.

One name deserving consideration is Applied Materials (AMAT), a Santa Clara, California-based company that should succeed as long as mobile device and electronic sales remain robust. Better still, Applied comes with considerably less risk than other companies in the sector, given that its display manufacturing equipment business -- it's largest growth segment -- has exposure beyond smartphones; it's products are used in other areas, like manufacturing glass coatings for homes and buildings.

AMAT stock closed Thursday at $19.86, down 0.35%. The shares have lost more than 20% on the year, which makes no sense, given that the company has done nothing but execute. And with spending on smartphones and tablets projected to grow in 2015 by close to $500 billion, Applied Materials, which supplies equipment, services and software to the companies that make components for those devices, looks like a smart way to profit off of that growth.

After market close Thursday, Applied Materials reported a profit of $364 million, or 29 cents per share, topping last year's profit of $262 million, or 21 cents per share. That translates to year-over-year growth of 39% and 38%, respectively. Analysts were looking for EPS of 31 cents.

Revenue for the three-month period climbed 4% year over year to $2.44 billion, topping last year's revenue of $2.35 billion and surpassing analysts' estimates of $2.40 billion. This means Applied Materials is squeezing out as much profit from each dollar it generates in revenue. Even better, the company is showing the strength of its flat panel display machine business, which has become its bread-and-butter profit driver.

Why? Consumers love their mobile devices. Not only that, even when they've become attached to the devices they have, it's tough to resist upgrading to the newer models with better features. This is why Apple (AAPL), for example, is doing such great business.

Look a few steps back on the supply chain, and it's clear why it continues to be a profitable business for Applied Materials too: The company supplies equipment, services and software to the companies that Apple relies on for its components: Its technology allows them to make the flat-panel displays and chips the front-line tech companies can't live without.

All of this means that, Applied Materials, which saw earnings grow by over 300% in 2014, is a proxy to the mobile boom. And in the next five years, the company is projected to grow earnings at an annual rate of 13%.

So now's the time to buy these shares, and if you already own AMAT, adding to an existing long position is an equally smart move. The company is guiding both fiscal third-quarter revenue and profits higher than consensus estimates, suggesting it sees no signs of slowing down.

All told, it's tough to ignore the value, especially with the stock down around 20% in 2015. Applied Materials stock, at just 21 times earnings, was cheap even before the company's results were released. Assuming Applied's projected rate of growth and margin expansion -- and with the mobile device market projected to see continuing strong growth -- these shares should reach $25 to $28 in the next 12 to 18 months, yielding around 25% gains.

This article is commentary by an independent contributor. At the time of publication, the author was long AAPL.

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