Trader beating S&P: This chip stock set to rally

Published Thu, Oct 22 201512:25 PM EDT

"Halftime Report" trader Stephanie Link bought shares of Lam Research on Thursday, predicting a rally in the stock after it completes the acquisition of KLA-Tencor. On Wednesday, Lam Research ( LRCX ) announced a deal to buy KLA-Tencor ( KLAC ) for $10.6 billion, joining two of the biggest makers of semiconductor-manufacturing equipment. Here's how the money manager is positioning her portfolio for the months ahead: "I believe the KLAC acquisition announced this week is a game changer for Lam Research, which will address 42 percent of the WFE [wafer fabrication equipment] market and give the company a leadership position in process control technology, etch and deposition technologies," Link wrote in an email. "The combination of the two companies should generate $10 billion in revenues and operating margins of 27 percent will provide $250 million in cost synergies," she added, noting that the transaction also bodes well for product diversification and market share growth potential. Since reaching a 52-week low of $61.20 on Sept. 24, shares of Lam Research are up 19 percent as investors get behind the name on the back of strong M & A trends in the sector. Source: FactSet But even with the recent gains, analysts on Wall Street predict the stock could rally another 25 percent, to $91 in the next 12 months, according to FactSet. "Lam Research has double-digit growth earnings power of $8-$9 per share, and trades at an attractive valuation," Link said. The addition of Lam Research to CNBC Pro's model portfolio also led Link to take profits in Red Hat ( RHT ), a holding that's up 12 percent since she bought it in December. Read More Trader: Five stocks for the end of a tough year So far this year, Link's model portfolio is up 7 percent compared with a decline of 0.7 percent for the S & P 500. To be sure, Link, who's a managing director at TIAA-CREF, still owns Red Hat in the portfolio she manages in real life and likes the stock for the long term. CNBC Pro subscribers may view all the top picks and current standings in the contest by clicking here . Disclosures: Stephanie Link owns shares of LRCX, LEA, DAL, LULU, CXO, RHT and V in the fund she manages at TIAA-CREF.

Source: Lam Research

"Halftime Report" trader Stephanie Link bought shares of Lam Research on Thursday, predicting a rally in the stock after it completes the acquisition of KLA-Tencor.

On Wednesday, Lam Research (LRCX) announced a deal to buy KLA-Tencor (KLAC) for $10.6 billion, joining two of the biggest makers of semiconductor-manufacturing equipment.

Here's how the money manager is positioning her portfolio for the months ahead: