Hold China-Based SMI

The following excerpts explain why Zacks senior electronic industry analyst Ken Nagy, CFA remains neutral on Semiconductor Manufacturing International (SMI), the semiconductor foundry company:

'Semiconductor Manufacturing International is a Chinese semiconductor foundry company with multiple integrated chip wafer fabrication plants. September quarter revenue was in-line with consensus estimates, while earnings missed.

'Strong utilization rates have driven the company to profitability. However, we remain concerned regarding operational performance in the near-term given severe price declines in DRAM. We believe shares are currently fully valued and expect shares to trade at current valuation metrics.

'SMI grew strongly in preceding quarters, its extensive foundry services and aggressive pricing permitting the company to gain share in the foundry space. In particular, the company witnessed strength in the memory area and in the computing end market. This was due to the large expansion of Dynamic Random Access Memory (DRAM) capacity on the 300mm Fab 4 production line.

'However, the large shift in product mix towards the lower Active Server Pages-Dynamic Random Access Memory (ASP-DRAM) severely impacted margins the past several quarters. Management has trimmed or pushed-out expansion plans for 2005 to 2006-2007, deviating from the original plan.  We continue to rate the shares of SMI a Hold and have set a price target of $5.'

International Growth for Paccar

A Hold recommendation has recently been issued to truck manufacturer Paccar, Inc. (PCAR) by Zacks senior automobile industry analyst Paul Raman, CFA. Here's what his update had to say:

'Paccar is benefiting from rising prices and increasing market share, along with strong growth in Mexico and Australia. On October 24, 2007, Paccar reported third quarter earnings. Earnings per share were $0.81, compared to $1.07 last year. Sales were $3.45 billion, down from $3.95 billion in last year's quarter.

'The company is in the midst of a 50% decline in Class 8 builds due to new emission regulations. This is negatively impacting earnings in the U.S. and Europe. Additionally, Paccar is leaving a layer of margin on the table by sourcing engines externally, and is currently not capturing as much of the downstream parts business as it could.

'Currently, the stock is valued at 12.5x 2008 earnings of $3.90. The company achieved a compounded annual growth rate (CAGR) in earnings per share of 22.8% for the last ten years compared to the Standard & Poor (S&P) 500's growth rate of 7.7%.

'The stock also outperformed the S&P 500 Index for the previous one-year, three-year, five-year, and ten-year time periods.