Semiconductor stocks glow on upgrade

Semiconductor equipment stocks hit another high note Friday, as an analyst upgraded a batch of stocks and advised investors to buy them now.

Applied Materials, up 75 cents to $55.20, Teradyne, up $1.08 to $45, and KLA-Tencor, up $1.01 to $58.08, all rose after Prudential Securities analyst Shekhar Pramanick upgraded them to "strong buy" from "accumulate."

The semiconductor manufacturing sector has been a subject of heated debate among analysts. They've agreed that a bottom for their businesses will be sometime in the next two quarters, but haven't been able to decide on when is a good time to get back into the stocks.

Applied Material's second-quarter results and outlook made the debate even more contentious. The company reported fiscal second-quarter earnings of $269 million, or 32 cents, excluding special charges. First Call's survey of 27 analysts predicted a second-quarter profit of 33 cents per share, with individual forecasts ranging from 28 cents to 37 cents per share. Applied Materials also told analysts to lower their third-quarter forecasts, but said it also sees orders reviving in the second half of its fiscal year.

"We believe investors should not wait for an equipment order recovery but rather build positions on near term volatility with a 12-18 month time horizon," Pramanick wrote in a research report Friday. He has seen signs of customer demand stabilizing, a sign that an equipment order recovery is only 1 to 2 months away.

The analyst said the stocks have potential benefits of 50 percent or more as they enter this next cycle; if investors wait until the recovery is well under way, they will miss out on the gains.

The analyst also raised price targets on Applied Materials to $67 from $60; KLA-Tencor to $69 from $58; Lam Research to $36 from $28, on Novellus to $68 from $64, on Teradyne to $53 from $40 and Kulicke & Soffa to $20 from $15.