Contrasting Lam Research (NASDAQ:LRCX) & Applied Materials (NASDAQ:AMAT)

Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX) are both large-cap computer and technology companies, but which is the superior investment? We will contrast the two businesses based on the strength of their earnings, valuation, institutional ownership, risk, profitability, dividends and analyst recommendations.

Insider and Institutional Ownership

80.6% of Applied Materials shares are held by institutional investors. Comparatively, 84.6% of Lam Research shares are held by institutional investors. 0.3% of Applied Materials shares are held by insiders. Comparatively, 0.3% of Lam Research shares are held by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Profitability

This table compares Applied Materials and Lam Research’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Applied Materials	29.31%	36.97%	21.30%
Lam Research	30.94%	66.21%	31.61%

Volatility & Risk

Applied Materials has a beta of 1.57, indicating that its stock price is 57% more volatile than the S&P 500. Comparatively, Lam Research has a beta of 1.8, indicating that its stock price is 80% more volatile than the S&P 500.

Dividends

Applied Materials pays an annual dividend of $2.12 per share and has a dividend yield of 0.4%. Lam Research pays an annual dividend of $1.04 per share and has a dividend yield of 0.3%. Applied Materials pays out 19.9% of its earnings in the form of a dividend. Lam Research pays out 19.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Applied Materials has increased its dividend for 8 consecutive years and Lam Research has increased its dividend for 10 consecutive years.

Analyst Ratings

This is a breakdown of recent recommendations for Applied Materials and Lam Research, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Applied Materials	0	6	27	1	2.85
Lam Research	0	6	28	0	2.82

Applied Materials currently has a consensus target price of $593.84, indicating a potential upside of 11.35%. Lam Research has a consensus target price of $358.67, indicating a potential upside of 14.98%. Given Lam Research’s higher possible upside, analysts plainly believe Lam Research is more favorable than Applied Materials.

Earnings and Valuation

This table compares Applied Materials and Lam Research”s gross revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Applied Materials	$28.37 billion	14.93	$7.00 billion	$10.65	50.08
Lam Research	$18.44 billion	21.16	$5.36 billion	$5.30	58.86

Applied Materials has higher revenue and earnings than Lam Research. Applied Materials is trading at a lower price-to-earnings ratio than Lam Research, indicating that it is currently the more affordable of the two stocks.

Summary

Lam Research beats Applied Materials on 12 of the 18 factors compared between the two stocks.

About Applied Materials

Applied Materials, Inc. engages in the provision of manufacturing equipment, services, and software to the semiconductor, display, and related industries. The company operates through three segments: Semiconductor Systems, Applied Global Services, and Display and Adjacent Markets. The Semiconductor Systems segment develops, manufactures, and sells various manufacturing equipment that is used to fabricate semiconductor chips or integrated circuits. This segment also offers various technologies, including epitaxy, ion implantation, oxidation/nitridation, rapid thermal processing, physical vapor deposition, chemical vapor deposition, chemical mechanical planarization, electrochemical deposition, atomic layer deposition, etching, and selective deposition and removal, as well as metrology and inspection tools. The Applied Global Services segment provides integrated solutions to optimize equipment and fab performance and productivity comprising spares, upgrades, services, remanufactured earlier generation equipment, and factory automation software for semiconductor, display, and other products. The Display and Adjacent Markets segment offers products for manufacturing liquid crystal displays; organic light-emitting diodes; and other display technologies for TVs, monitors, laptops, personal computers, electronic tablets, smart phones, and other consumer-oriented devices. It operates in the United States, China, Korea, Taiwan, Japan, Southeast Asia, and Europe. The company was incorporated in 1967 and is headquartered in Santa Clara, California.

About Lam Research

Lam Research Corporation designs, manufactures, markets, refurbishes, and services semiconductor processing equipment used in the fabrication of integrated circuits. The company offers ALTUS systems to deposit conformal films for tungsten metallization applications; SABRE electrochemical deposition products for copper interconnect transition that offers copper damascene manufacturing; SOLA ultraviolet thermal processing products for film treatments; and VECTOR plasma-enhanced CVD ALD products. It also provides SPEED gapfill high-density plasma chemical vapor deposition products; and Striker single-wafer atomic layer deposition products for dielectric film solutions. In addition, the company offers Flex for dielectric etch applications; Kiyo for conductor etch applications; Syndion for through-silicon via etch applications; and Versys metal products for metal etch processes. Further, it provides Coronus bevel clean products to enhance die yield; Da Vinci, DV-Prime, EOS, and SP series products to address various wafer cleaning applications; and Metryx mass metrology systems for high precision in-line mass measurement in semiconductor wafer manufacturing. The company sells its products and services to semiconductors industry in the United States, China, Europe, Japan, Korea, Southeast Asia, Taiwan, and internationally. The company was incorporated in 1980 and is headquartered in Fremont, California.