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Despite the September Effect burden on top of the early August market correction, the US stock market has largely recovered. Ahead of the much-anticipated rate cuts, the Dow Jones Industrial Average index (DJI) closed at a record high on Monday, presently at 41,800 and up 3.5% within the last five days.

Likewise, the tech-oriented Nasdaq Composite (IXIC) rose by nearly 4%, returning to August-end level of over 17,700. At the same time, CBOE Volatility Index (VIX) is down 10% since last Wednesday, mirroring investors’ optimism as they anticipate the end of the high interest rate regime. 

Although market swing could still turn bearish due to substantial rate cut lag and carry-trade dynamics, the market appears set for more near-term rally. Taking into account prior market corrections, which stocks are presently discounted?

Lam Research Corporation (Nasdaq: LRCX)

Alongside Taiwan Semiconductor Manufacturing Company (TSMC), Lam Research is a critical cog of the global semiconductor industry. While TSMC manufactures chips for fabless companies like Nvidia and Intel, Lam provides TSMC and others the equipment necessary to do so.

Specifically, Lam supplies wafer fabrication equipment. For instance, the company’s ALTUS lineup makes it possible to manufacture advanced memory, chip packaging and transistors via atomic layer deposition (ALD) and chemical vapor deposition (CVD). Likewise, Lam’s Syndion makes it possible to manufacture dense integrated circuits necessary for smart devices via deep silicon etching.

Suffice to say, Lam Research is in the top tier of companies that rely on scarce human capital, competing with Dutch ASML Holding (ASML) and Applied Materials (AMAT). Being adjacent to the semiconductor industry, Lam is also a cyclical company, evidenced by its annualized ups and downs.

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Lam Research’s annualized revenue growth per quarter. Image credit: MacroTrends

At present, AI demand is still ramping up as the Big Tech sector finds the most cost-effective way to deploy generative AI products. It also bears keeping in mind that text-to-video platforms are still in an incipient stage, but they will require the largest deployment of chips due to highest computing demands. 

In Q2 2024 earnings ending June, Lam Research reported $1 billion net income vs $0.8 billion in the year-ago quarter, having raised record cash reserves to $5.85 billion. The company is clearly in the upcycle, but AI is yet an unknown quantity that could protract it for far longer.

Lam’s price-to-book ratio is presently 11.54, while its forward price-to-earnings ratio is 21.01. Against the 52-week average of $841.98, LRCX stock is currently priced at $771.16 per share. Nasdaq’s analyst forecasting aggregation is quite optimistic for Lam Research stock.

The bottom outlook is significantly higher than the present price level, at $893, while the average LRCX price target is $1085.71 per share. This would indicate an impressive potential upside of 40%.

Intel (Nasdaq: INTC)

Standing out from the Nvidia/AMD/Intel trio, Intel is the only semiconductor company with its own foundries, while the other two rely on TSMC capacities. Intel is also in a heavy negative news cycle. 

Across social media platforms, Intel has been bearing the consequences of its eroded quality control issues. On top of the previously reported elevated voltage issues with 13th/14th-Gen desktop CPUs, Intel recently officially recognized oxidation problems from late 2022. 

Although these manufacturing mishaps serve as a compounding event to pile on Intel, it still stands that Intel is a strategic vehicle for US-based chip manufacturing.

Due to costs related to foundry-building efforts, it is yet unclear if Intel will bifurcate its holdings. Such news would likely boost INTC stock based on gains when the restructuring potential was revealed in late August. But with lower interest rates on the horizon, Intel may opt to refinance its substantial $48.3 billion debt load, of which $4.7 billion is short-term debt.

Against the 52-week average of $36.11, INTC stock is now at $21.93 per share. The bottom outlook is close at $19.8 while the average INTC price is $26.09. The high forecast is $42, provided Intel leaves the current news cycle behind and improves its financials. 

iQIYI, Inc. (Nasdaq: IQ)

iQIYI is a Chinese take on Netflix, providing one of the cheapest exposures to this promising business model. Alongside subscription fees for its streaming services and exclusive content, iQIYI offers free access that is ad-supported.

Even more so than Netflix, IQ partners with multiple companies for original series, from Philippine broadcaster ABS-CBN and Malaysian Astro to Bingo Group. At the end of 2023, the company partnered with over 90,000 content creators to churn out content, making it more of a hybrid between Netflix and YouTube.

In the latest Q2 2024 earnings delivered in August, iQIYI reported a 5% year-over-year revenue decline to $1 billion, generating $9.5 million net income. Being highly dependent on content, the company’s membership revenue declined 9% year-over-year.

With that said, iQIYI holds substantial $888,391 million in cash reserves for the next content cycle. At present penny stock price of $2 per share, IQ shares are halved from their 52-week average of $4.08.

The average IQ price target is $3.59 based on 10 analyst inputs. This makes for a 71% potential upside, while the optimistic forecast of $5.1 is even more enticing. 

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