You've certainly heard of the California Gold Rush of 1849. What you may not know about it, however, is that most people who migrated west in search of the precious metal didn't actually find much of it, if any.
That's not to say there weren't fortunes made. In addition to the small number of miners who "struck it rich" by discovering gold, the folks who sold shovels, pick axes, and other supplies to prospectors also did very well for themselves.
The simple story's been told so many times that's it's practically become cliché. The point still stands though. That is, sometimes fortune-seekers can become so engrossed by a particular opportunity that they look right past a related one that's even more promising.
Enter Lam Research (LRCX -0.80%), which might quietly be the technology sector's top investment prospect at this time.
What does Lam Research do?
Never heard of it? It not, it's not surprising. The $100 billion company doesn't manufacture anything you ever directly use. Lam Research does, however, make the technological tools required to manufacture something you depend on every day. That's technology itself. As the company touts, "virtually every leading edge device has been made using our equipment."
Take something as commonplace as semiconductors as an example. There's a good chance the ones you're utilizing right this very second were initially designed by Lam's Semiverse virtual engineering tech, with that silicon then also being cleaned and etched by this company's wares.
Lam Research isn't resting on its laurels, merely updating its existing capabilities. It's pioneering as well. As an example, earlier this month it unveiled the semiconductor industry's first-ever collaborative robot (or cobot), called Dextro. Lam's Customer Support Business Group Vice President Chris Carter explained of this solution, "Built to work side-by-side with fab [microchip manufacturing] engineers, it executes complex maintenance tasks with precision and repeatability that are beyond human capability alone, enabling higher tool uptime and manufacturing yield."
You get the idea. Its solutions are nothing that you as a consumer or your employer would ever need, or even want. Lam Research's chipmaking customers, however, desperately need its hardware to make the technology products that you and your employer ultimately depend on.
The bullish argument(s) for Lam Research
Lam's clearly got its value to the world's semiconductor fab industry, but is it actually the smartest growth stock to buy with $1,000 right now (or any other amount of money, for that matter)? After all, most tech companies are in the same proverbial boat, with their top and bottom lines all closely tethered to one another.
There's no denying Lam Research's fortunes generally ebb and flow with the broader technology sector. But perhaps not as much as you might think. Although it ran into a revenue headwind last year, for instance, that's largely in comparison to a swell of sales that had been put on hold during and because of the COVID-19 pandemic. The company's top line is already growing again, on pace to improve 16% this fiscal year before growing an expected 13% next year.
LRCX Revenue (Quarterly) data by YCharts
Ditto for the bottom line; it does rock back and forth. For every one step back it takes, though, it reliably takes two more steps forward. Lam's now reliably about 4 times as profitable as it was less than a decade ago when it acquired Coventor, which laid much of the groundwork for what would eventually become its Semiverse platform. In 2019, the organization introduced its Corvus etching and Coronus wafer-cleaning systems, offering foundries a means of improving their production yields of properly functioning silicon. Then in late 2020, Lam unveiled its advanced Striker FE platform, setting the stage for next-generation NAND and DRAM memory chips.
These aren't evolutions that you or most other consumers think much about. You simply use them, expecting your newer electronic devices to be better than your old ones. Lam Research is a big reason that's happening without you noticing. That's what its long-term sales and earnings growth suggest anyway, even if we do see the occasional short-lived swoon.
Buy Lam Research sooner rather than later
But right now? What's the hurry?
There's arguably no bad time to step into shares of a company you rely on. But there's arguably a better time to take a swing than others. In this case, that time is now, while Lam stock is still down 30% from July's high.
See, the midyear pullback is largely in response to second-quarter results that were good, but not good enough to keep the stock propped up at its then-newly buoyed price; sales only grew a modest 2.1% for the three-month stretch in question.
As the stock's budding rebound effort since last month's low implies, however, more and more investors are starting to believe this slowdown is just another temporary one that will ultimately cede back to double-digit growth. It certainly wouldn't be the first time Lam shares have bounced back from a dip, reflecting the company's reliable long-term growth record.
