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5/10/2024 10:10:51 AM Eastern Time

IN TUNE
By Charles Payne, CEO & Principal Analyst

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The market was impressive again yesterday with individual stocks holding onto gain. Real Estate led with gains followed by Utilities and Energy.

The change of guards remains to be intriguing with small caps outperforming. Particularly small cap value, yet the index remains in last place year-to-date with peer indexes.

Market Breadth

Advancers outpaced decliners as up volume outpaced down volume, and new highs touched new lows.

Sentiment & Dry Powder

Active money has rebounded after touching near the lows of the year.

AAII day traders got a bit more bullish this week. The reversal from bear to bullish show individual investors are more in tune with the rhythm of the market than so-called smart investors.

Bond Auction

It was a decent bond auction that saw good demand for 30-year bonds where $60 billion was entered, and less than $20 billion was accepted. Yesterday’s auction settles this week’s bond supply with the 3-year auction receiving a good bidding on Tuesday while the 10-year sales on Wednesday was tough.

Portfolio Approach

We are adding a new position in Technology (ASML) this morning in the Hotline Model portfolio.

Today’s Session

Utilities are on a roll, partly due to investors returning to traditional safe havens and as the electricity demand story makes the rounds.  Up seven days in a row also suggests funds want to stay in the market rather than the sidelines.

However, the market needs growth to lead the way, or all the cyclical sectors will row the boat in the same direction.

This morning, it looks like growth, including AI stocks, are champing at the bit.

Long Idea

Skinny

With all the talk and excitement over those hot AI semiconductor stocks being the picks and shovels, this company is the picks and shovels of semiconductors.

Its lithography tools enable “affordable scaling.” 

Business Segments

• lithography systems
• computational lithography software
• metrology
• inspection products

Although the last quarter wasn’t great, the gross margin of 51% and operating margin of 26.3% are fantastic (current quarter guidance suggests they remain elevated).

Cash Flow

The company also boosts strong cash flow.

I would like to see an even more aggressive return of capital to investors, but this isn’t bad for a European company.

The company's products are in huge demand as the AI & software gold rush continues at breakneck speed.

Technical View

We may be jumping the gun, and not waiting for a close above 50 days, but these names are moving at such large clips that it could mean paying up a lot more.

Through $947, we see the shares moving to a double top of $1,050 – our target is $1,110.

Long Idea: ASML Holding N.V. (ASML) @ $925.00
Industry: Technology; Semiconductors
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BACKGROUND: ASML Holding N.V. develops, produces, markets, sells, and services advanced semiconductor equipment systems for chipmakers. It offers advanced semiconductor equipment systems, including lithography, metrology, and inspection systems. The company also provides extreme ultraviolet lithography systems; and deep ultraviolet lithography systems comprising immersion and dry lithography solutions to manufacture various range of semiconductor nodes and technologies. In addition, it offers metrology and inspection systems, including YieldStar optical metrology systems to assess the quality of patterns on the wafers; and HMI electron beam solutions to locate and analyze individual chip defects. Further, the company provides computational lithography solutions, and lithography systems and control software solutions; and refurbishes and upgrades lithography systems, as well as offers customer support and related services. It operates in Japan, South Korea, Singapore, Taiwan, China, rest of Asia, the Netherlands, rest of Europe, the Middle East, Africa, and the United States. The company was formerly known as ASM Lithography Holding N.V. and changed its name to ASML Holding N.V. in 2001. ASML Holding N.V. was founded in 1984 and is headquartered in Veldhoven, the Netherlands.

SKINNY: We may be jumping the gun, and not waiting for a close above 50 days, but these names are moving at such large clips that it could mean paying up a lot more. Through $947, we see the shares moving to a double top of $1,050 – our target is $1,110.