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Bull Of The Day: Taiwan Semiconductor Manufacturing Co. (TSM)

Daniel Laboe

Taiwan Semiconductor Manufacturing Co. (TSM), commonly referred to as TSMC, is the largest and most capable contracted chip manufacturer in the world. This company is at the forefront of the 5G revolution and the next wave of datacenter hyperscaling. Analysts have been increasingly optimistic about these shares' potential, upwardly revising EPS estimates for the next couple of years and propelling TSM into a Zacks Rank #1 (Strong Buy).

TSMC is utilized by the biggest and baddest semiconductor companies in Silicon Valley, including Nvidia (NVDA), Qualcomm (QCOM), AMD (AMD), and even leading US hardware innovator, Apple (AAPL). These cutting-edge businesses rely on TSMC for their manufacturing needs because it is the only company that can meet their requirements.

Semiconductor manufacturing has been seen as a commodity-like business. Some investors are worried about the saturated competition and pricing pressure that weigh on commodity industries. TSMC is anything but a commodity business.

TSMC fosters innovation every chance they get, with "about 85% of worldwide semiconductor start-up product prototypes were enabled by TSMC," according to the investor relations page. Its massive scale and capabilities are unmatched. Its closest competitor is only a fraction of its size and unable to compare to the company's fabrication capabilities. Top chipmakers are all but forced to utilize TSMC to remain competitive.

Financials & Performance

Since TSMC listed its shares 26 years ago it has driven astounding growth figures, with a compounded annual growth rate (CAGR) of more than 15% for both its top and bottom lines over the past decade and a half. The business is very well-capitalized, with $14.25 billion in cash & equivalents, combined with consistent, robust cash-flows that allow the company enormous financial flexibility.

TSMC provides monthly revenue updates, and 2020 has been a stellar year for the company through April, with year-over-year topline expansion of 39% in the first 4 months of the year. it would appear that TSMC has been relatively immune to the global health crisis that has been devasting to so many industries.

TSM shares have exhibited exceptionally consistent growth over the past ten years, providing shareholders with over 400% capital gains (more than 2 times the S&P 500's returns). Stockholder returns are driven through reliable capital appreciation and a cushy 2.6% dividend yield. Analysts are estimating that TSM's dividend payout will increase by more than 20% annually over the next 3 years. A growth stock with a strong yield is rare gem.

Taiwan Semiconductor Manufacturing Company Ltd. Price, Consensus and EPS Surprise

Taiwan Semiconductor Manufacturing Company Ltd. Price, Consensus and EPS Surprise

Taiwan Semiconductor Manufacturing Company Ltd. price-consensus-eps-surprise-chart | Taiwan Semiconductor Manufacturing Company Ltd. Quote

TSM is one of the most under-appreciated post-pandemic equity opportunities. The stock is down 17% year-to-date, unjustly underperforming the broader semiconductor sector, which saw a 10% decline over the same period. I like these shares at any price below $50 per share.

Recent News

TSMC just announced that it would be moving forward with a plan to construct a $12 billion chip manufacturing plant in Arizona. The plant is anticipated to start producing revolutionary 5-nanometer transistors by 2024.

This news followed the Trump Administration voicing its concern about US chipmakers' overreliance on Asia. According to sources familiar with the matter, both the State and Commerce Department are involved with TSMC's plans.

This marks a big win for US chipmakers who will no longer need to rely on supply chains abroad for their manufacturing needs. This also puts TSMC right in the middle of the innovative action. 

Key Takeaway

TSMC is an excellent way to hedge your semiconductor bets and invest in the future of hardware. There is a tidal wave of chip innovation on the horizon and a sizable amount of pent up demand for cutting-edge hardware with this pandemic further illuminating the worlds need for technology. 5G and hyperscaling will catalyze this impending surge in chip demand, and the world's leading chip manufacturer is a well-positioned benefactor.

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Taiwan Semiconductor Manufacturing Company Ltd. (TSM) : Free Stock Analysis Report
 
QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
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