Investment management firm, Davis Advisers, released its “Davis New York Venture Fund” 2022 annual investor letter. A copy of the same can be downloaded here. The fund’s portfolio of durable companies trades at 9.8 times forward earnings now compared to 17.8 times for the S&P 500 Index. The firm believes that holdings of the fund have significant earnings prospects in the years ahead. In addition, please check the fund’s top five holdings to know its best picks in 2022.
Davis New York Venture Fund highlighted stocks like Applied Materials, Inc. (NASDAQ:AMAT) in the 2022 annual investor letter. Headquartered in Santa Clara, California, Applied Materials, Inc. (NASDAQ:AMAT) provides material engineering solutions for semiconductors, display, and related industries. On March 20, 2023, Applied Materials, Inc. (NASDAQ:AMAT) stock closed at $124.04 per share. One-month return of Applied Materials, Inc. (NASDAQ:AMAT) was 11.47%, and its shares lost 8.44% of their value over the last 52 weeks. Applied Materials, Inc. (NASDAQ:AMAT) has a market capitalization of $104.991 billion.
Davis New York Venture Fund made the following comment about Applied Materials, Inc. (NASDAQ:AMAT) in its 2022 annual investor letter:
“If Berkshire represents “growing value” then Applied Materials, Inc. (NASDAQ:AMAT) might be said to represent “undervalued growth.” Founded more than a half century ago, Applied Materials has grown to be the largest supplier of manufacturing tools, services and software to the semiconductor industry. Holding more than 15,000 patents, Applied has become the irreplaceable supplier to the critical global growth industry, semiconductors. Because this company’s earnings can be uneven, short-sighted investors often label this company as “cyclical” and assign it a relatively low valuation.
We disagree and, having perused more than 50 years of data, conclude that Applied is unquestionably a growth company trading at a value price. Figure 8 shows the two sustainable drivers of this growth. The green bars indicate that semiconductor manufacturers have grown industry revenue at 7.5% over the last decade, more than three times the growth of the U.S. economy over this same decade. The orange line indicates that the percentage of this revenue that the industry commits to capital spending has gradually risen from roughly 20% to 30%. Putting these two trends together, it should come as no surprise that Applied has grown revenue at a rate of 11%, and operating income at more than 19% over this same time period.
In the near term, the impact of the chip industry’s post-pandemic inventory correction, which could reduce equipment demand, may more than offset the benefit of recent supply chain issues that limited Applied Materials’ ability to meet customer demand. Longer term, geopolitical tensions between China and the U.S. are driving investment in potentially redundant chip production globally, while at the same time the U.S. and her allies are restricting export of leading edge production tools into China. Even though the near term is frustratingly veiled in uncertainty, the recent shortages and trade restrictions have firmly established that access to chip-production technology is essential to every major industrial economy. Given this, we see more opportunity than risk and estimate that Applied Materials could sell at about 10 times what the company could be earning three-to-five years from now.”
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Applied Materials, Inc. (NASDAQ:AMAT) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 70 hedge fund portfolios held Applied Materials, Inc. (NASDAQ:AMAT) at the end of the fourth quarter which was 67 in the previous quarter.
We discussed Applied Materials, Inc. (NASDAQ:AMAT) in another article and shared the list of largest semiconductor companies in the world. In addition, please check out our hedge fund investor letters Q4 2022 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
