For Immediate Release
Chicago, IL – January 26, 2022 – Zacks Equity Research shares Taiwan Semiconductor Manufacturing Company (
TSM Quick Quote TSM - Free Report) as the Bull of the Day and Netflix ( NFLX Quick Quote NFLX - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft ( MSFT Quick Quote MSFT - Free Report) and Texas Instruments ( TXN Quick Quote TXN - Free Report) .
Here is a synopsis of all five stocks:
: Bull of the Day Taiwan Semiconductor Manufacturing Company, aka TSMC, is the world's largest third-party chip fabricator, responsible for manufacturing most of the world's digital chips, and is a part of 85% of semiconductor innovations. Its cutting-edge manufacturing capabilities are unrivaled, working at an atomic level that no other fabricator can match (3nm transistors). Amid this global chip shortage, TSM is the best-positioned and safest way to play this impending 2022 chip rally.
The most trusted tech giants turn to the most reliable semiconductor foundry for manufacturing and innovative needs. TSMC's customers include companies like Apple, NVIDIA and even Intel, which has been unable to keep up with the innovative curve in chip fabrication, which TSMC continues to drive higher.
TSMC exited 2021 with outstanding annual results that illustrated its ability to drive consistent secular growth in an industry previously known for its cyclicality. This chipmaking powerhouse has achieved an incredible compounded annual growth rate (CAGR) of 17.5% and 17.1% on its top and bottom-lines, respectively, since it went public in 1994.
Management is now forecasting that this reliable organic growth (between 15% and 20% CAGR) will continue through 2026. I still view these projections as conservative, considering the accelerating demand for advanced chip technology that the last 2-years of rapid digital adaptation have brought.
In its final 2021 quarterly report in mid-January, Taiwan Semi impressed the markets with December revenues that came in sizably above estimates, catalyzing a 20% rally in less than two weeks of trading. However, TSM shares haven't been immune to recent selling pressures, which have wiped out its fundamentally fueled post-earnings gains.
Now is the time to pull the buy trigger on TSM as analysts drive up estimates and price targets across the board, propelling this stock of the future into a Zacks Rank #1 (Strong Buy).
The Latest Report
The world's largest semiconductor contractor released its 2021 year-ending earnings, and its stock proceeded to take flight with impressive growth fundamentals fueling its rally. TSM's low-beta shares drove up roughly 20% in less than 2 weeks, touching a fresh all-time high in its post-earnings price action on the highest daily volumes TSM has ever seen as institutions and r/WallStreetBets (WSB) flood into this next-gen champ.
TSMC continues to prove to the investing world that it is so much more than just a third-party chip fabricator, with proven boundless organic growth that never fails to impress analysts' swelling expectations.
TSMC is powering its cutting-edge innovative partners into the next generation of digital advancement. Its high volume 7-to-5 nanometer (nm) chip operations are exploding at an unmatchable pace, now making up 50% of revenues, forcing the world's leading chipmakers to utilize TSMC's unrivaled services to remain competitive.
In fact, the pioneer of advanced chipmaking, Intel, who has fallen behind the innovative-curve in recent years, will be utilizing TSMC's newest 3nm facility in northern Taiwan. Intel's inability to keep up with Taiwan Semi's fabricating abilities signifies a massive tailwind for this global technological backbone and a systemic shift in the industry towards focused business models that leverage niche competitive advantages.
Decades of boundless and consistent growth and a tremendous pull-forward in digital adaptation have accelerated Taiwan Semi's growth trajectory. The best-positioned semiconductor companies are no longer the cyclically-natured commodity-like securities the market had become accustomed to, but secular growth narratives at the heart of this emerging digital renaissance of prolific technological advancement (aka, The 4th Industrial Revolution).
Taiwan Semi's record top and bottom-line fourth-quarter results reflected optimistically on the entire chip sector, and last night's blowout report from Texas Instruments confirms the swelling demand for digital chips across industries.
The Opportunity In Chips
Chipmakers have been experiencing the same valuation multiple compression that has plagued the broader tech sector since the year began. Investors are pulling profits from the massive rally that semis had seen since the pandemic lows ahead of the Fed's meeting. Soaring interest rates and inflation expectations have catalyzed recent selling pressure along with portfolio rotations out of the most risk-heavy equity sectors.
Many investors have hesitated to add tech back into portfolios, even at discounted levels. Still, there seems to be a common consensus that chip stocks are one of the growth segments worth moving on now. As a result, we see momentum reenter this technological backbone as investors rush to their favorite chip stocks.
The global chip shortage has had rippling impacts on numerous sectors of the economy, forcing automakers to reduce manufacturing and even completely halt it in some cases. This is an excellent position to be in for chipmakers, where demand outpaces supply (price control). Capital is pouring into this space, and it looks like the demand is only going to grow in this prolifically digitalizing world.
TSM represents the best parts of the semiconductor industry (on a rolling basis) as its supports the fabrication of virtually all leading-edge chip innovators. Taiwan Semi has solidified its global positioning as the manufacturing backbone in this new economic era of burgeoning digital demand, no matter what happens within the competitive tech landscape.
TSM is trading at a forward P/E of 22x, which is the most discounted this stock has been since the trough of the pandemic sell-off of March 2022. With a 1.2% dividend yield, reliable cash flows, and a stronghold of a balance sheet (best credit rating in the industry), there is no reason to hesitate on starting a TSM position today. I'm looking at a 12-month price target between $150 and $175.
Good luck out there!
Equity Strategist & Editor of The Headline Trader Portfolio at Zacks Investment Research Bear of the Day: Netflix was the first of big tech to report its Q4 results and investors’ incredible disappointment may have just pulled the “big” out of its classification. Despite a top and bottom-line beat for this market-disrupting streaming pioneer, NFLX capitulated roughly 22% in its worst one-day decline in a decade.
Netflix is looking at peak growth in the rearview mirror with that nostalgic longing that makes you do things you might regret, like spending billions to enter the already oversaturated gaming space in an attempt to reinvigorate its one surging growth outlook.
Netflix’s pandemic tailwind has come to an end. The streaming king’s latest quarterly release is pointing to further deceleration in its global subscriber growth, reining in analysts’ estimates and price targets, which dragged NFLX down to a Zacks Rank #5 (Strong Sell).
Netflix’s domestic subscription growth appears to be topping out, with 75 million being the magic number for North America (US & Canada) that covers the 120 million households in the region. The streaming king is now relying on international subscriber growth and incremental increases in sub-prices for its “endless” expansion to continue.
Investors can no longer justify a 50x+ P/E multiple on NFLX, with only these secondary growth drivers at the company’s disposal. Netflix has lost nearly half of the $300 billion valuation it was given only a couple months ago as shareholders abandon this pandemic winner as the global economy reemerges from the lockdowns (where Netflix thrived).
Netflix has come down to a 29x P/E, which is the first reasonable valuation multiple I have seen in this name (first time below 40x since IPO), but my concerns are more about how management is responding to this growth lapse.
Netflix has recently cleaned house at the C-suite level. This management team has been largely brought on in the past 3 years. I’m guessing that the board has tasked this group of enthusiastic leaders with reinvigorating long-term growth.
My biggest worry is that its fresh management team will hemorrhage too much cash attempting to recreate its once booming streaming growth with new ventures like its gaming segment, that won’t end up adding any value to the company or its shareholders.
Despite what some shareholders may believe, Netflix will never be able to recreate the nascent market-disrupting value that its streaming service rendered when it was introduced in 2007. Netflix changed the way the world consumes movies & TV: cutting the ad-ridden cable cord and allowing users to watch what they want when they want commercial free.
The streaming idea was such a hit that every production company with a substantial enough library began their own on-demand platform. This created a very competitive landscape for Netflix and forced them to spend billions on building out their own content library to match production houses like Disney who had decades upon decades of highly demanded content.
Netflix’s new management team has not proven themselves to the markets yet and its being reflected in its share price. I would stay away until this new leadership class has the approval of the broader investing public.
Additional content: Microsoft ( MSFT Quick Quote MSFT - Free Report) Tumbles on Q2 Beat; T.I. ( TXN Quick Quote TXN - Free Report) Beats & Raises
Another big swing in what’s become a rollercoaster of a market lately found major indexes finish in the red across the board yesterday, even with the Dow, for the second time in two days, staging an heroic afternoon comeback from being down -819 points earlier. It was not to be, however: the Dow finished -0.19%, the S&P 500 was -1.22%, the Nasdaq again felt the brunt of the selling, -2.28% and the small-cap Russell 2000 was -1.45%, and is now clinging onto 2K for the index, at 2004.
After Tuesday's closing bell,
Microsoft initially fell an additional -6% on just-reported fiscal Q2 earnings, even as the world’s biggest software company and Zacks Rank #2 (Buy)-rated stock beat expectations on top and bottom lines: earnings of $2.48 per share on $51.74 billion easily surpassed the $2.29 per share and $50.32 billion, respectively. Shares then eased during the post-market sell-off, now -3.5%.
At a glance, we don’t see any particular reason Microsoft shares should be selling off on this report, unless the whisper numbers were for much bigger beats than the company was able to muster. Growth in its Azure business grew in-line with estimates — +46% — but not above them; for the most important growth numbers at Microsoft, investors were perhaps looking for more here. It also speaks to the clear reality that traders aren’t finished punishing tech firms yet. Microsoft shares are +24% from this time a year ago.
A sort of mirror-image in the tech space after the regular session yesterday also hit the tape:
Texas Instruments is +6% on its top- and bottom-line beats, with $2.27 per share outpacing the $1.95 expected on $4.83 billion, which notches above the $4.44 billion in the Zacks consensus. Texas Instruments also cranked up both earnings and revenue guidance for Q1, to $2.01-2.29 per share and between $4.5-4.9 billion — ahead of the $1.88 per share and $4.39 billion earlier forecast.
Case-Shiller Home Price Index was released for the month of November Tuesday morning, a look in the rearview but widely considered the most accurate gauge of home prices across the country. A headline of 18.8% was a touch below the downwardly revised 19.0% reported the previous month, but still amounts to the sixth-largest read in the index’s 34-year history. It also reaches a record high 282.44.
Both the 10-city and 20-city surveys are down a bit from October levels to +16.8% and +18.3%, respectively. But these are still historically strong numbers, led by Phoenix (+32.2%), Tampa (+29.0%) and Miami (+26.6%). Chicago, Minneapolis and Washington DC took up the rear, but still posted double digit gains.
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