Lauren Romeo, a portfolio manager for Royce & Associates, LLC, says MKS Instruments, Inc. (MKSI) is one of her favorite stocks at the moment. She says semiconductor technology is at an inflection point that should create a strong demand tailwind for MKS Instruments.
“In order to develop ever faster, smaller, more energy-efficient chips, new chip designs or architectures — such as FinFET, 3D NAND, advanced packaging — are being developed which in turn require new semiconductor tools,” Romeo says. “MKSI is benefiting not only from capital spending on these next-generation tools, but also because more tools per process are required given the growing complexity in advanced nodes.”
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Romeo says she also like MKS Instruments because the company has taken steps to grow sales and reduce the cyclicality of its financial results by taking the same components it sells to the semiconductor industry and diversifying into nonsemiconductor markets like medical, solar and industrial.
“Nonsemiconductor business now accounts for about one-third of MKSI’s revenue. Finally, MKSI has a clean balance sheet with no debt and more than $10 per share in cash — or more than 25% of its market cap,” Romeo says. “Historically, management has done a good job opportunistically redeploying excess cash into acquisitions that expand the product portfolio as well as via a regular dividend and timely stock repurchases.”
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