In Q2, Stan Druckenmiller added a new holding, 1.65 million shares of Entegris (NASDAQ:ENTG) to his Duquesne Family Office portfolio but why did Stan buy Entegris stock, and could it be worth looking at as a long-term holding for investors in today’s challenging market?
Where Does Entegris Fit in Druckenmiller’s AI Strategy?
As a famous macro investor who uses technical patterns too, Stan Druckenmiller has a noted ability to spot and exploit long-term economic trends. One of the trends that his portfolio is actively targeting at the moment is the AI boom. Most prominently, Druckenmiller’s portfolio features significant stakes in TSMC and Microsoft, both of which were purchased or added to in Q2 alongside Entegris.
Even more so than TSMC, Entegris represents a deep pick-and-shovel play on the market for advanced semiconductors.
Entegris specializes in containers and filtering equipment that protect silicon wafers from contaminants during the semiconductor fabrication process. Such equipment is massively important to the industry, as even tiny defects can represent as much as hundreds of millions of dollars in lost yield for large semiconductor manufacturers.
As the leader in this space, Entegris is one of the key supporting players in the push to increase advanced chip manufacturing.
Of particular note are the benefits Entegris could derive from the American government’s push to revitalize the domestic semiconductor industry. Under the CHIPS Act, Entegris will receive as much as $75 million for a new production facility in Colorado.
More importantly, however, many semiconductor manufacturers are also building or expanding their US facilities. TSMC, for instance, is investing $100 billion to expand its US footprint, a project that will include three new fabs.
Though it was announced after Druckenmiller bought his shares, Entegris is even spending $700 million on new semiconductor manufacturing R&D. Though expensive for the business, this shows that management is putting forth great efforts to remain at the forefront of its industry and provide the solutions needed by semiconductor manufacturers.
These factors may neatly explain Druckenmiller’s interest in Entegris. Beyond just its own current ability to capitalize on the growth of the semiconductor industry, Entegris is positioned quite well to benefit from both private and government investments in semiconductor manufacturing.
Moreover, unlike the businesses to which it sells, Entegris isn’t exposed to the extremely high levels of competition that define much of the semiconductor industry today. Entegris, therefore, could have an asymmetrical exposure to the semiconductor market, carrying much of the growth potential without as much competitive risk.
It’s also worth noting that this isn’t the first time Druckenmiller has opened a position in Entegris. In late 2022, he bought about 55,500 shares that were liquidated at a modest profits in early 2023. The size of his recent stake in ENTG, however, is much larger and likely indicates a more serious bet on the business.
Entegris’ Profitability
Needless to say, it takes more than a solid market position to make a business appealing as an investment.
Unsurprisingly for a stock that has grabbed the attention of Stanley Druckenmiller, Entegris is also respectably profitable.
On a trailing 12-month basis, the business has delivered a net margin of 9.2 percent and a return on equity of 8.1 percent.
Though perhaps not astronomical, these profitability metrics show that Entegris has a solid current position from which to expand as it takes advantage of its growth opportunity from the advanced semiconductor market over the next several years.
Did Druckenmiller Find a Bargain in ENTG?
By most standards, Entegris doesn’t exactly look cheap at 45.2 times earnings and 50.7 times operating cash flow.
When one considers its position as a pick-and-shovel play on a fast-growing industry with a wide moat, however, such premiums could prove to be justified.
This view appears to prevail among analysts, who give ENTG an average target price of $99.36. If shares of Entegris reach that price over the coming 12 months, the stock will have an upside of more than 13 percent from its current price.
Entegris’ Risks
While Entegris has quite a lot going for it, it’s also important to understand the risks that the stock may carry, especially in light of its fairly high valuation. Chief among these is the current state of American trade relations with the rest of the world.
Though many large players in the semiconductor space are enhancing their US operations, that will likely be a long and drawn-out process.
Until then, the semiconductor industry is generally vulnerable to the effects of largely unpredictable US tariff policy. Trade uncertainty was directly noted in management’s Q2 commentary as one of the factors contributing to lower revenues and net income last quarter.
Why Did Stan Druckenmiller Buy Entegris and Is the Stock a Buy Now?
In many ways, Entegris fits Druckenmiller’s habit of finding businesses that can benefit from large macroeconomic trends in unique ways. In the case of Entegris, the ongoing buildout of advanced semiconductor manufacturing will require the kind of equipment the business specializes in to keep defects low and yields high. As such, Entegris can capitalize on AI-driven demand for high-performance semiconductors without actually manufacturing chips in its own right.
The question of whether to buy ENTG, however, may be slightly more complex. Entegris is a business that is weighed down by what may well be temporary pressures, but which is also a potential beneficiary of much larger secular trends.
With investment in AI still going at a rapid pace and new semiconductor fabs being built, Entegris is apt to have better prospects in the long run than it does right now. Even so, there’s little doubt that ENTG is subject to macroeconomic downside just as it could be a beneficiary of macro upside.
On the whole, Entegris appears as though it could be a decent buy for investors willing to take a chance on a deep value play on the AI and semiconductor markets. ENTG isn’t without its risks, but the positives on Entegris seem to outweigh the negatives. As such, Entegris may be worth looking at as a buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.