Lam Research

Methodology

Lam Research's earnings are highly cyclical with semiconductor capital spending, making it essential to normalize to mid-cycle levels rather than using peak or trough figures. Equipment demand swings dramatically with chip industry investment cycles. Use multi-year average earnings to capture through-cycle profitability rather than extrapolating current conditions.

Methodology

During semiconductor upturns, Lam can show very low PEG ratios that prove misleading as the cycle turns, while downturns create seemingly expensive ratios despite recovery potential. The metric requires careful cycle adjustment and comparison to historical ranges. Technology leadership in etch and deposition can justify premium valuations versus peer equipment makers.

Methodology

Lam pays a modest dividend and conducts aggressive buybacks during downturns, with the dividend adding some stability to volatile capital returns. Management's capital allocation flexibility matters more than the absolute yield level. PEGY captures the income component though capital appreciation dominates total returns in this cyclical industry.