For Immediate Release
Chicago, IL – May 18, 2020 – Zacks Equity Research Shares of Taiwan Semiconductor Manufacturing Co. (TSM - Free Report) , as the Bull of the Day, Chipotle (CMG - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Activision Blizzard, Inc. (ATVI - Free Report) , Glu Mobile Inc. (GLUU - Free Report) and Zynga Inc. (ZNGA - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Taiwan Semiconductor Manufacturing Co., 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, Qualcomm, AMD and even leading US hardware innovator, Apple. 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.
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.
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.
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.
Bear of the Day:
Chipotle shares have run up beyond their intrinsic value and it may be time to pull profits off the table. CMG shares are sitting at their all-time highs, just south of $1000 per share. Despite the business's ability to operate during the global pandemic, I do not think it warrants the aggressive valuation surge that it has experienced in recent weeks. Analysts have been reducing their short & long-term EPS estimates for Chipotle, pushing it down to a Zacks Rank #5 (Strong Sell).
A Great Business That Investors Took Too Far
Let me start by saying I like Chipotle, and I'm not just talking about the food. The business has successfully adapted to the evolving consumer. Its management team has been able to navigate the unprecedented pandemic economy effectively, with digital solutions to meet every customer's requirement.
Investors are pouring money into CMG shares, more than doubling its value in just two months and driving the stock price up to a level that is beyond reasonable. I like the business, but I'm not too fond of the price.
There is still plenty of pain ahead for Chipotle as restaurant storefronts remain either closed or at substantially reduced capacity. Chipotle is no exception to the broader restaurant decline.
The company is well-capitalized and has relationships with financiers that your average mom and pop restaurant does not. Chipotle may gain some market share as local restaurants fail, but that does not mean its immune to the pandemic-driven financial pain.
Unemployment claims have surged to 36 million in the past 8 weeks (roughly 22% of the US labor population). How can we expect to see demand return to anything close to its pre-COVID levels anytime soon when unemployment is sitting at depression rates?
We are on the verge of a Main Street bankruptcy wave as local restaurants and bars are forced to fold due to the government-mandated shutdown. CMG will likely slide with its cohorts as the gravity of our current crisis sets in for investors.
Chipotle is a workday staple, with this fast-casual restaurant being a preferred takeout option during busy work weeks at the office. What happens if a sizable portion of the population no longer goes into the office in the post-pandemic society? Will Chipotle still be able to drive the same demand as it had before the health crisis?
I am not so sure. There is still a significant amount of uncertainty in the future of this business. These shares should not be sitting at all-time highs. If you are a holder, I would consider reducing my exposure and pulling some profits off the table.
3 Mobile Gaming Stocks Benefiting from Lockdown
The coronavirus pandemic may have stalled businesses and dragged financial markets down to new lows over the past couple of months but the universe of mobile gaming has benefited immensely from the ensuing lockdown. The social distancing measures have prompted people to seek alternative entertainment options to keep themselves occupied, and mobile gaming offered just that.
The fact that almost everyone has a smartphone makes it even easier for mobile games to fill the void created by social restrictions. Given the exponential rise in the penetration of mobile gaming over the past few months, it seems prudent to take a look at some stocks that are dominating the space right now.
Mobile Gaming’s Popularity Gets Further Boost
Given the surge in the number of mobile game downloads, mobile gaming companies came up with a string of new titles and updates to keep users engaged. More advertising and superior gaming experience also boosted the space.
In fact, Tencent Holdings recently reported better-than-expected earnings and revenues on the back of its gaming business. Tencent reported first-quarter 2020 non-GAAP earnings of 40 cents per share, which beat the Zacks Consensus Estimate by 14.3%. The company’s revenues of $15.25 billion also surpassed the consensus mark by 7.5%.According to the company, mobile games got a strong push from hit titles like Honor of Kings and Peacekeeper Elite.
The company mentioned its overseas titles such as PUBG Mobile and Clash of Clans, along with the two aforementioned titles as major driving factors behind its revenue growth.
A similar story lies behind the impressive price performance of Activision Blizzard, Inc. stock since the beginning of this year. The company’s overall Monthly Active Users (MAUs) were 407 million for the quarter ended Mar 31, 2020 compared with 345 million as of Mar 31, 2019.
Although Activision Blizzard failed to meet the Zacks Consensus Estimate for earnings, its total revenues jumped 23.4% year over year to $1.47 billion. The Zacks Consensus Estimate for the company’s revenues was pegged at $1.32 billion. Robust performance ofCall of Duty and World of Warcraft drove first-quarter 2020 results.
The company’s Call of Duty has hit record popularity since the beginning of this year. The video game franchise attained so much popularity that the company had to roll out two free titles for gamers, Call of Duty Mobile and Call of Duty: Warzone(Mar 10, 2020). These titles were meant to be available with Call of Duty: Modern Warfare available on PC and console. In fact, thanks to the company’s unique titles, it now has more than 100 million monthly active users.
Mobile Gaming’s Tremendous Growth in 2019
Mobile games already account for the majority of the global video gamingindustry. The mobile gaming segment accounted for 60% of revenues in the global video game market in 2019. Revenues totaled $49 billion and profit came in at $16.9 billion, per a report by Golden Casino News.
The global mobile games market is expected to reach a valuation of $56.6 billion by 2024, expanding at a compound annual growth rate of 2.9%.
3 Stocks in Focus
We have hand-picked three stocks that have gained since the beginning of this year. One may keep these companies in their list for future reference. These stocks carry a Zacks Rank #2 (Buy) or #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Activision Blizzard, which belongs to the Zacks Toys - Games - Hobbies industry, have gained 22.8% so far this year compared with the industry’s rise of 6.8%.
Activision Blizzard’s expected earnings growth rate for the current year is 18.7%. The Zacks Consensus Estimate for the company’s current-year earnings has moved 7.7% north in the past 60 days. Activision Blizzard carries a Zacks Rank #2.
Glu Mobile Inc. is a developer and marketer of free-to-play mobile games for the users of smartphones and tablet devices. The company has popular mobile games such as Disney Sorcerer’s Arena, Design Home, Covet Fashion, Restaurant Dash, Cooking Dash, Kim Kardashian Hollywood and Deer Hunteretc under its belt. Glu Mobile carries a Zacks Rank #2.
Shares of Glu Mobile, which belongs to the Zacks Toys - Games - Hobbies industry, have gained 55.9% so far this year compared with the industry’s rise of 6.8%.
Glu Mobile’s expected earnings growth rate for the current year is 70.6%.The Zacks Consensus Estimate for the company’s current-year earnings has moved 11.5% north in the past 60 days.
Zynga Inc. is a developer of mobile games for Apple iOS and Google's Android operating systems. The company also develops games for social networking sites such as Facebook and Snapchat. The gamemaker has a long list of well-known games such as FarmVille 2: Country Escape, FarmVille 3: Animals, Zynga Poker, Dawn of TitansandWords with Friends etc.Zynga carries a Zacks Rank #3.
Shares of Zynga, which belongs to the Zacks Gaming industry, have gained 28.8% so far this year compared with the industry’s loss of 38.7%.
Zynga’s expected earnings growth rate for the current year is more than 100%.The Zacks Consensus Estimate for the company’s current-year earnings has moved 3.8% north in the past 60 days.
Zacks Top 10 Stocks for 2020
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