Lam Research Corp (LRCX) – Closing Long Position – up 141% vs. S&P up 38%

Lam Research Corp (LRCX: $372/share) was featured as a Long Idea on 6/12/17 and reiterated on 5/23/18. At the time of the original report, Lam Research received a Very Attractive rating. Our long thesis highlighted the firm’s understated earnings, superior profitability, and the stock’s cheap valuation.

This report, along with all of our research[1], utilizes our superior data[2] to get the truth about earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”

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During the 3+ year holding period, LRCX outperformed as a long position, rising 141% compared to a 38% gain for the S&P 500.

While the firm remains in a strong position in its industry and generates a top-quintile return on invested capital (ROIC), its valuation is no longer as appealing. Now, as the stock trades near its 52-week high, we think there are better opportunities in the current market and are closing this long recommendation.

Figure 1: LRCX vs. S&P 500 – Price Return – Successful Long Call

Sources: New Constructs, LLC and company filings

Note: Gain/Decline performance analysis excludes transaction costs and dividends.

This article originally published on August 10, 2020.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

[2] Our core earnings are a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence a paper by professors at Harvard Business School (HBS) & MIT Sloan. The paper empirically shows that our data is superior to “Operating Income After Depreciation” and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).

Click here to download a PDF of this report.

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