2020 was an exceptional year for the stock market. Barring a few corrections triggered by macroeconomic factors, the stock market largely witnessed unprecedented growth despite a continuing economic recession. While most companies suffered from a complete shutdown of business activities worldwide for weeks at a stretch, others capitalized on the changing life- and work-style patterns. Stocks in the tech space have been the largest beneficiaries of the pandemic. Social distancing requirements has demanded the digitization of most activities, from working and learning to entertainment and fitness.
The Russell 3000 growth index and S&P 500 growth index, two of the largest indices that represent growth stocks in the US and international markets, have returned 32% and 27.6% year-to-date, respectively. This compares to the 13.5% gain of the broader S&P 500 index over this period.
The tech industry boom can be attributed mainly to the semiconductor industry, whose state-of-the-art chips have led to the smooth performance of electronic gadgets. The surging demand for cloud computing services and the ongoing 5G revolution will increase the demand for semiconductors. Companies such as Taiwan Semiconductor Manufacturing Company Ltd. (TSM) and Qorvo, Inc. (QRVO), two of the biggest names in this industry, have already made their mark through their impressive financial performance and stock price returns year-to-date, and are we think well positioned to keep soaring.
Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
TSM is one of the biggest semiconductor manufacturing companies in the world. Its integrated circuits have widespread application in electronics, industrial equipment, and communication systems. The company’s highly demanded products and services include five and seven nanometer processor chips, complementary metal oxide semiconductor image sensors, and mask technology. In fact, the company’s active involvement in the development of seven- nanometer technology was recognized by IEEE, which awarded TSM with the 2021 IEEE Corporate Innovation Award on December 9.
On November 10, TSM announced its decision to use approximately $1.50 billion from its capital appropriations budget to install specialty technology and advanced packaging capacity, as well as to construct and install fab facility systems. It also plans to open a Zero Manufacturing Center in Taiwan for an upfront cost of $124.70 million, and a wholly owned subsidiary in Arizona, with paid-in capital of $3.50 billion.
TSM generated NT$124.84 billion in November, up 4.7% month-over-month. The company’s revenue for the first 11 months of 2020 has increased 26.4% year-over-year to NT$1.22 trillion. TSM’s net sales for the third quarter (ended September 30) increased 21.6% from its year-ago value to NT$356.43 billion. Both net income and EPS rose 35.9% from their year-ago values to NT$137.31 billion and NT$5.30, respectively, over this period.
The consensus EPS estimate of $0.93 for the current quarter ending December 2020 indicates a 27.4% rise year-over-year. TSM has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $12.33 billion for the ongoing quarter indicates an 18.6% improvement from the year-ago value.
TSM has gained more than 140% since hitting its 52-week low in March. The stock hit its 52-week high of $107.84 on December 8th.
How does TSM stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
It is currently ranked #1 of 86 stocks in the Semiconductor & Wireless Chip industry.
Qorvo, Inc. (QRVO)
QRVO develops technology and radio frequency (RF) solutions for applications in Mobile Products, and Infrastructure and Defense products. It mainly supplies Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs) across Asia, Europe, and the United States.
ORVO’s Ultra-Wideband (UWB) technology has been gaining popularity in the market, as schools and offices explore ways to resume activities in-person, according to a press release dated October 5. The UWB technology facilitates social distancing requirements as well as contact tracing, and thereby has been highly demanded worldwide during the pandemic. The company has delivered more than 8 million UWB chipsets across 40 markets so far, through its wholly owned subsidiary Decawave.
On November 5, QRVO acquired 7Hugs labs S.A.S., a software company based in Paris. This acquisition has huge implications for its UWB business because 7Hugs’ proven software stack, when integrated with UWB technology, will support several new applications in mobile and automotive devices and IoT markets.
On the same day, QRVO was selected by the US government Naval Surface Water Center to construct a state-of-the-art heterogenous integrated packaging (SHIP) RF production and prototyping center. This contract (worth $75 million) allows ORVO to leverage its technical expertise and industry knowledge to design and manufacture next generation RF components for commercial sale as well as sale to US defense contractors.
ORVO’s revenue increased 34.6% year-over-year to $1.06 billion in its fiscal first quarter ended October 31. Gross profit increased 50.9% from the year-ago value to $491.60 million, while net income rose 41.3% from the prior year quarter to $136.90 million. EPS rose 42.2% from the same period last year to $1.18., beating the Street estimates by 14.6%.
The consensus EPS estimate of $2.65 for the current quarter ending December 2020 indicates a 42.5% rise year-over-year. Moreover, QRVO beat the Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $3.84 billion for the current year indicates an 18.4% rise from the year-ago value.
QRVO gained more than 150% to hit its 52-week high of $170.90 in December, since hitting its 52-week low of $67.54 in March.
It is no surprise then that QRVO is rated “Buy” in our POWR Ratings system, with an “A” for Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade. It is currently ranked #46 in the same industry.
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TSM shares were trading at $104.00 per share on Friday afternoon, down $0.23 (-0.22%). Year-to-date, TSM has gained 82.14%, versus a 14.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…
