It’s 2017 and all tech stocks price are overvalued. All heavily driven by the demand for users, industry evolution, machine learning and most importantly the confidence of investors. Many sceptics speak about the technology bubble. Many believers are looking for value unexploited tech stocks. I think MooMooCoo have identified a fantastic tech stock which could potentially be huge for today’s current value.
This stock is bigger than Disney and it made a net profit five times of $11bn compared to $9.3bn. It has a PE ratio of under 18 which is similar to Apple but has more growth potential than Apple, Disney and Microsoft. It pays a dividend close to 3% and growing every year to match its share price. This company focus on efficiency and low operating expenses is fascinating.
This awesome company is ‘Taiwan SemiConductor’ who is known to be responsible for the infamous iPhone and iPad ‘A’ processor chip. Its ticker is TSM (NYSE) and TSMC (TPE).
TSMC is known as pure-play semiconductor company which does not produce its own design. Currently, the largest contract chip maker in the world who helps its customer mass produce integrated circuits from its pre-design mass fabrication factory. Each time the integrated technology enters a smaller size realm the factory almost becomes obsolete and needs to be newly constructed and design to suit a new manufacturing process. We are currently in the 16-nanometer realm. 2018 is the 7-nanometer era. Seems like Moore’s law of 18 months is broken significantly.
TSMC has all the major client business from Broadcom, Qualcomm, Apple, Nvidia and many other majors clients. Their rivals are both Intel and Samsung. The only reason TSMC is successful is the magnificent ability to win contracts from the largest client in the work to keep up with Samsung and Intel. Think about it; because of TSMC competitiveness, we have affordable technological hardware year after year. If the world was only controlled by Samsung and Intel, we would be paying through our noses for mobile phones, iPad and laptops. The ability to cut cost with low schedule impact is TSMC’s core strength.
TSMC is still classed as an Asia emerging market fund/share meaning the share is at classed as non-mature and contain risk. Honestly, in my opinion, TSMC should be a class in the same as Nvidia, Intel, Qualcomm and Risk of failure of the business is definitely lower than the three companies mentioned. In fact, these three companies rely heavily on TSMC on the production and manufacturing of their design product in TSMC’s nano-tech specialised fabrication yard. With high profit and net income, TSMC is always spending on equipment and upgrade on a yearly basis to suit customer demands as the size of the integrated circuit are getting smaller less than Moore’s law 18 months evolution.
TSMC’s trading activity level is ultimately low. Traders are not even touching TSMC meaning there is no volatility, no overvaluation and non-realistic future valuation. Based on technical facts TSMC financial information and ratio is equivalent to a defensive beverage or high cap oil company and yet the P/E ratio is low despite the high earning per share. Personal I understand that TSMC is severely undervalued. With the current financial data, they should hold a PE ratio of 25 instead of current 17. With a PE ratio of 25, it means there is plenty room for medium growth as the technology is still evolving and no reason to stop. There is no severe rivalry who can do a better job than TSMC.
At PE ratio of 25 and 35 TSMC should be valued at $60 or $84 respectively (typo on chart).
Major investors feel that TSMC is severely tied to Apple products and they are at peak maturity. Many do not understand that TSMC is simply just loyal to its customer and Apple respects the quality output of TSMC. I recently bump into a Cirrus Logic Employee on a train and he explains the difference between his clients Apple and Samsung. Apple respects the OEM supplier of products and honours the design. In return Apple expects their level of quality and performance achievement to be compiled. Samsung, on the other hand, looks at OEM supplier differently where they do things their way and dictate and changes the design. This was before the infamous exploding Galaxy Note 7.
If tomorrow Apple and TSMC divorce for some reason, I am sure Nvidia will jump on TSMC full time to ensure all their 12nm and future 7nm products gets rolled out full time without delays. TSMC is a popular girl on the block with plenty of admirers.
TSMC should not be classified as an emerging market share. It’s should be classed as a growth share which pays a generous dividend to its shareholders. You can trade TSMC on the NYSE in US dollar. No excuse not to have this fabulous share in your portfolio. The CEO might not see another decade as he is beyond retirement, the good news is that the business is so established even a monkey can operate it.