Buffett’s Blend

Value investor Warren Buffett once described his investing style as 85% Benjamin Graham and 15% Philip Fisher. While most investors know Benjamin Graham as the father of security analysis, Fisher may not be quite as well known.

Fisher made his mark on the investment industry in his own right when he coined the term “scuttlebutt” research to describe interview-intensive research with industry players. He also authored the popular book “Common Stocks and Uncommon Profits.” In the book, Fisher outlined fifteen points for what to look for in a stock.

Among Fisher’s due diligence points were market leadership, healthy margins, and a commitment towards research and development. This led Fisher to concentrate on innovative and growing technology companies. A technology company with a combination of Fisher’s criteria at a value price would be an attractive blend of Graham’s and Fisher’s approaches.

Currently, semiconductor manufacturing equipment leader Applied Materials, Inc. (Nasdaq: AMAT) appears to be trading at a value price (more on that below) and scores well on Fisher’s criteria. As such, let’s take a closer look at AMAT’s business model, recent results, and competitive position ahead of the company’s earnings announcement on Thursday.

Applied’s Business Model

Applied Materials is an industry leader in supplying manufacturing equipment, services, and software to the semiconductor, display, and related industries worldwide. The company operates with three reportable segments that include Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets.

The Semiconductor segment (65% of 2017 net sales) develops and sells manufacturing equipment for semiconductor chip fabrication. Global Services (21%) offers integrated service and software solutions for its semiconductor and display products. The Display and Adjacent Markets segment (13%) consists of products for manufacturing liquid crystal displays, OLEDs, and displays for other consumer-oriented technologies: