ASML and SAP: Euro Tech Stocks in the FANG Class

Dow Jones Global Indexes | Global Stock Markets

A frequent complaint is that the run-up by the FANG stocks appears overdone.

Whether that’s true or not, investors still want to hold big tech names showing solid growth. As a result, there are all sorts of efforts to identify such companies, while steering clear of the usual U.S. suspects—


Facebook



FB -1.3047745511229143%



Facebook Inc. Cl A


U.S.: Nasdaq


USD170.95


-2.26
-1.3047745511229143%



/Date(1504904400382-0500)/


Volume (Delayed 15m)
:
10428870



AFTER HOURS



USD170.95



%


Volume (Delayed 15m)
:
569589




P/E Ratio
38.94077448747153

Market Cap
502713119769.081


Dividend Yield
N/A

Rev. per Employee
1945860









More quote details and news »


(ticker: FB),


Amazon.com



AMZN -1.3854431478248441%



Amazon.com Inc.


U.S.: Nasdaq


USD965.9


-13.57
-1.3854431478248441%



/Date(1504904400379-0500)/


Volume (Delayed 15m)
:
2539859



AFTER HOURS



USD966.7


0.8
0.08282430893467232%


Volume (Delayed 15m)
:
65463




P/E Ratio
245.1522842639594

Market Cap
470517789308.935


Dividend Yield
N/A

Rev. per Employee
439731









More quote details and news »


(AMZN),


Netflix



NFLX -1.441340782122905%



Netflix Inc.


U.S.: Nasdaq


USD176.42


-2.58
-1.441340782122905%



/Date(1504904400191-0500)/


Volume (Delayed 15m)
:
4399856



AFTER HOURS



USD176.8


0.38
0.21539507992291124%


Volume (Delayed 15m)
:
190990




P/E Ratio
215.14634146341464

Market Cap
77283250000


Dividend Yield
N/A

Rev. per Employee
2168050









More quote details and news »


(NFLX), Google parent


Alphabet

(GOOGL), plus


Apple



AAPL -1.6309066104427632%



Apple Inc.


U.S.: Nasdaq


USD158.63


-2.63
-1.6309066104427632%



/Date(1504904400420-0500)/


Volume (Delayed 15m)
:
25357631



AFTER HOURS



USD158.59


-0.04
-0.025215911239992436%


Volume (Delayed 15m)
:
3253904




P/E Ratio
18.026136363636365

Market Cap
832944643316.008


Dividend Yield
1.5886024081195234%

Rev. per Employee
1920430









More quote details and news »


(AAPL), and


Microsoft



MSFT -0.48426150121065376%



Microsoft Corp.


U.S.: Nasdaq


USD73.98


-0.36
-0.48426150121065376%



/Date(1504904400340-0500)/


Volume (Delayed 15m)
:
14003430



AFTER HOURS



USD74


0.02
0.02703433360367667%


Volume (Delayed 15m)
:
700386




P/E Ratio
27.4

Market Cap
572584801207.602


Dividend Yield
2.10867802108678%

Rev. per Employee
720927









More quote details and news »


(MSFT).

Dutch chip-making equipment provider ASML Holding (ASML.Netherlands) and German software giant SAP (SAP.Germany) just might fit the bill. They are pacesetters with room to run, according to Benjamin Segal, portfolio manager for the Neuberger Berman International Equity fund, which counts those two stocks among its largest holdings. “When you come to Europe, you’ve got essentially those two companies that are leaders in their industry,” he says, in discussing stocks on par with the FANG gang. “The rest of European technology is basically consulting firms.”

Scandinavia’s Nokia (NOKIA.Finland) and LM Ericsson (ERICB.Sweden) are big tech names, but Segal advises avoiding them, saying they’re essentially suppliers to the telecom industry, which isn’t inclined to spend lavishly these days. They also face stiff competition from Chinese rivals that are state-influenced, have low costs of capital, and don’t share the same profit motive.

“When you’ve got a big competitor that isn’t looking at profits, and you’ve got a very price-sensitive set of customers, that isn’t a particularly appetizing recipe for sustainable returns,” says the portfolio manager.

Neuberger Berman prefers to buy dominant players in the higher-margin software industry, such as SAP. It’s also bullish on ASML, even though the company sells hardware, producing lithography equipment for semiconductor manufacturers. That’s because ASML has a lead in its sector thanks to its innovative extreme ultraviolet (EUV) technology, he says. Plus, demand for chips looks set to remain strong thanks to an expected boom in connected devices, the so-called Internet of Things.

“There is such ongoing demand and investment for semiconductors as we move into an IoT world, where we’re going to have chips in the toaster, the refrigerator, the car, our cattle, the supply chain, and everywhere,” he says.

He isn’t alone in highlighting European players benefiting from the IoT. Chip companies like Austria’s ams (AMS. Switzerland) and Switzerland’s


STMicroelectronics



STM -0.32017075773745995%



STMicroelectronics N.V.


U.S.: NYSE


USD18.68


-0.06
-0.32017075773745995%



/Date(1504904633085-0500)/


Volume (Delayed 15m)
:
6638736



AFTER HOURS



USD18.65


-0.03
-0.16059957173447537%


Volume (Delayed 15m)
:
36304




P/E Ratio
43.82918817456593

Market Cap
16914197327.3951


Dividend Yield
1.284796573875803%

Rev. per Employee
132265









More quote details and news »


(STM) “tend to fly beneath the radar,” but they’re “playing a pivotal role in this technological revolution,” says Anis Lahlou-Abid, co-manager of JPMorgan Asset Management’s Europe Technology Fund, in a recent commentary for Financial News.

ASML shares have appreciated from 107 euros to €133, a year-to-date gain of more than 40%, so they’re no steal. The company trades around 30 times earnings and 26 times forecasted forward-year earnings, well above Japanese rival


Canon’s



CAJ -0.8340523439746909%



Canon Inc. ADR


U.S.: NYSE


USD34.48


-0.29
-0.8340523439746909%



/Date(1504904524084-0500)/


Volume (Delayed 15m)
:
210557



AFTER HOURS



USD34.48



%


Volume (Delayed 15m)
:
515




P/E Ratio
21.430791223817515

Market Cap
46330278612.1521


Dividend Yield
4.100800464037123%

Rev. per Employee
171591









More quote details and news »


(CAJ) 21 and 19, respectively. Yet Neuberger’s Segal isn’t fazed by the price. He says it will take time for ASML to step up deliveries for its EUV systems, and investors are anticipating the ramp-up.

“It’s 30 times this year, but it’s 24 times next year, and it’s 19 times the next year. So your multiple compresses by 40% in two years, and that’s because of the growth you’re getting,” he says. Investors are betting the company “is going to deliver two, three, or four pieces of equipment in the next couple of years, but in 2019 or 2020, it’s going to be 10, 15, or 20 pieces of equipment.”

RISKS FOR ASML, which also trades on the


Nasdaq



NDAQ 0.8545849158979925%



Nasdaq Inc.


U.S.: Nasdaq


USD74.35


0.63
0.8545849158979925%



/Date(1504904400151-0500)/


Volume (Delayed 15m)
:
837338



AFTER HOURS



USD74.35



%


Volume (Delayed 15m)
:
6166




P/E Ratio
58.0859375

Market Cap
12296201710.5664


Dividend Yield
2.0443846671149966%

Rev. per Employee
895491









More quote details and news »


through American depositary receipts, include the possibility that major customers such as Intel could slash their spending on equipment because of a financial crisis or other shock. The company could also stumble from manufacturing problems or a competitive breakthrough product.

Neuberger Berman likes SAP due in part to its broad suite of enterprise resource-planning software, as well as a migration to the cloud that has made it easier for smaller companies to use SAP and


Oracle’s



ORCL -0.28996713705780014%



Oracle Corp.


U.S.: NYSE


USD51.58


-0.15
-0.28996713705780014%



/Date(1504904614173-0500)/


Volume (Delayed 15m)
:
9653795



AFTER HOURS



USD51.6


0.02
0.038774718883288095%


Volume (Delayed 15m)
:
702688




P/E Ratio
23.445454545454545

Market Cap
213990564634.698


Dividend Yield
1.4734393175649476%

Rev. per Employee
273391









More quote details and news »


(ORCL) offering, broadening that market. “The enterprise software market is growing, and SAP’s share within that market is, too,” Segal says.

SAP shares trade at €90, or 20 times forecasted forward-year earnings, above Oracle’s P/E of 17. That valuation is “more than reasonable” for a business “growing organically and sustainably at close to 10% in a low-growth world,” Segal says. The stock is up roughly 9% in 2017, after pulling back since June as investors expressed disappointment about SAP’s profit margins. “The one caveat that we have with SAP is that margins haven’t expanded to the extent that you would expect,” Segal says. It should happen soon, but it’s a big problem if it doesn’t, since it’s been a key expectation among bulls, he adds.

IN EUROPEAN MARKETS LAST WEEK, the major benchmarks were mixed, with the pan-European Stoxx Europe 600 index edging lower by 0.18%. The European Central Bank made no change to interest rates or its bond-buying program, as expected, but it hinted at an update in October.

Email: editors@barrons.com

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