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Taiwan Semiconductor Manufacturing Company is leading the fourth industrial revolution from behind the scenes. TSMC is the largest semiconductor manufacturer in the world (54% share) with a market positioning that is multiples ahead of its competitors. This stock has consistently driven returns for investors, and I would consider them one of the safest tech growth investments in the industry.
After TSMC blew past its Q2 earnings estimates last week, illustrating 34% revenue growth year-over-year and robust margin expansion, leading to the enterprise's most profitable quarter since its inception. The pandemic appears to have provided innovation-driven TSMC with a strong tailwind that I expect will continue to fill the company's sails for years to come.
The world has seen 5 years of digitalization in 5 months. Cutting-edge chip technology has never been in high demand with the expansion of data centers for advanced cloud-computing and preparation for the 5G revolution.
Analysts continue to push their EPS estimates higher and higher, thrusting TSM into a Zacks Rank #1 (Strong Buy).
Building for The Future
TSMC creates 85% of the world's semiconductor prototypes. Its Open Innovation Platform supports start-ups and enterprises alike by reducing design barriers and improving first-time integrated circuit (I.C.) success.
TSMC has seen more semiconductors than any other company in the world. They are working at the largest scale and with the most state-of-the-art technology to improve a firm's "design time, time-to-volume, time-to-market, and ultimately, time-to-revenue," according to TSMC investor relations site.
The most trusted tech names in the world turn to the most trusted semiconductor foundry on the globe for their manufacturing and innovative needs.
More and more tech companies are turning to foundries for their I.C. production needs as the technology required to compete becomes impossible to produce in-house. For example, Samsung and TSMC recently teamed up in the development of 5-nanometer transistors, which would give it the ability to put 30 billion transistors on a chip the size of your fingernail.
This company has an enormous amount of growth ahead of it. Its realized economies of scale have rippled through the company's financials, positioning it to reap the benefits from the next wave of hyperscaling, A.I. development, and the implementation of 5G technology.
Recent Development
Taiwan Semi is Silicon Valley's go-to chip manufacturer. TSMC strategic Arizona plant will manufacture cutting-edge 5-nanometer transistors. The advanced semiconductor plant will cost $12 billion, and its target completion is 2024.
This news followed the Trump Administration voicing its concern about chip-makers reliance on Asia. According to sources familiar with the matter, both the State and Commerce Department are involved with the plans.
Operations on American soil will only deepen Silicon Valley's reliance on this semiconductor manufacturing powerhouse.
Buy The Rally
Innovation-driven chipmakers are forced to use TSMC because no other fabricator can meet their requirements. TSMC has driven over 15% CAGR on its top and bottom lines since it went public in 1994. TSM shares have driven consistent growth for decades and will for decades to come.
This stock offers both capital gain opportunity and a lofty 2% dividend, which provides those apprehensive investors with a guaranteed return that outpaces any "safe" fixed income option.
These shares are trading at 20 times forward earnings, representing a discount to both its sector and the broader market. TSM is currently trading at all-time highs. Still, despite potential short-term volatility, I expect TSM (the largest semiconductor stock by market cap) to be a significant equity market driver through the Roaring 20s. This stock is a robust long-term investment.
Boot Barn was actually a healthy growing company coming into this pandemic-driven economic slowdown, but this natural disaster triggered a rude awakening for this working-class retailer. BOOT shares have plummeted roughly 57% for 2020 thus far, as investors price out this firm’s potential.
The stock had driven up over 500% from Q4 of 2017 until January of this year as the company runway of growth kept extending, but unfortunately, it looks like the business may have overextended itself as the stock price. Analysts have been decreasing their EPS estimates in both the near and long-term, pushing BOOT into a Zacks Rank #5 (Strong Sell).
The Pandemic’s Impact
Just to be entirely transparent off the bat, I am not recommending that you bet against shares of BOOT, I am merely saying these shares may still be in trouble, despite losing most of their value from January.
Boot Barn is retail that sells functional workwear to those in working-class jobs such as construction, manufacturing, oil & gas, electric/plumbing, and agriculture. These are the industries that are seeing some of the most significant employment cutbacks.
This enterprise has a considerable strategic presence in key oil regions around the US, and the massive hit that this industry has taken is going to ripple into Boot Barn’s financials.
Loss of employment and job uncertainty is going to hamper demand for Boot Barn products substantially. It will be years before these industries reach full employment again (if they ever do), and I suspect that this will strain demand for Boot Barn in the coming years.
Boot Barn had been aggressively expanding its western presence with an increasing number of big-box brick-and-mortar storefronts averaging 11,000 square feet. The company currently operates 264 stores in 33 states, representing a 50% storefront increase in the past 5 years. I think they may have overextended themselves. The overhead from its enormous storefronts may be Boot Barn’s undoing.
Financial Situation
The business’s paper-thin margins, combined with massive inventory levels, is quite concerning to me. Boot Barn will likely be forced to sell its products at a sizable discount to clear some of its inventory. This will weigh heavily on its already tight margins.
Boot Barn was able to keep its bottom-line above water in its March quarter, with its e-commerce segment being its life preserver. Still, the company experienced negative free-cash-flows, and analysts estimate that its June quarter will be even worse, with results expected July 29th. According to Zacks Consensus estimates, the company is expected to report an EPS of -$0.16 on sales of $137 million. This would represent its worst sales numbers in 15 quarters.
In the past, the company had been able to rely on its cash flows to support operations, but I do not believe that this will be possible in the coming quarters. As of March 31st, 2020, Boot Barn has $70 million in cash, digging into its revolving lines of credit to maintain operations.
Glimpse of Hope
Boot Barn has a small ecommerce presence (making up just over 15% of its sales), unlike many of its cohorts. Boot Barn stores are largely located in rural areas, which are expected to increase in brick-and-mortar foot traffic more quickly than in non-rural regions. These two silver-linings could be this retailer’s saving grace, but uncertainty remains high, and I would still stay away from BOOT shares.
Key Takeaways
This unprecedented global pandemic has been able to turn a seemingly healthy growing company on its head. There is still hope for this rural retailer, but it is up to management to navigate these murky economic waters. For now, I would keep my distance from these shares until we get more color on management’s strategy to get through this highly uncertain period.
Additional content:
Snap Beats but Drops, T.I. Posts Strong Q2, Ameritrade Rockets
Following Tuesday’s close which saw the Nasdaq underperform the Dow, S&P 500 and the small-cap Russell 2000, tech names posted noteworthy earnings results for calendar Q2 — also with mixed results. The Dow and the S&P were up 0.6% and 0.2%, respectively, while the Nasdaq dropped 0.8% on the day after hitting a new intra-day high early in the session.
Snap Inc. released Q2 earnings results Tuesday afternoon, outperforming on the bottom line by a penny to -$0.09 (down from the -$0.06 in the year-ago quarter) on revenues of $454 million, which bettered the $441.7 million in the Zacks consensus. Average revenue per user beat expectations by a solid dime to $1.91, though Daily Active Users (DAU — a hugely important metric for social media companies) disappointed at 238 million in the quarter where most everybody stayed at home during the coronavirus quarantine.
Further, DAU guidance for Q3 came in at 242-244 million — an improvement over the last quarter, but not one that necessarily merits the 100% run-up over the last three months in SNAP shares, as had been the case. Shares had bottomed out around -12% on today’s news, but have since buoyed back to -5%. For more on SNAP’s earnings, click here.
Texas Instruments, another Zacks Rank #2 (Buy)-rated stock, busted out expectations on both top and bottom lines after Tuesday’s closing bell. Earnings of $1.48 per share flew past the 88 cents in the Zacks consensus, though 33 cents depicts a benefit to earnings not included in the original guidance from the company. Same with quarterly sales: $3.24 billion strode past the $2.96 billion expected.
T.I. also raised guidance for Q3 earnings and revenues: $1.14-1.34 per share and $3.26-3.54 billion, respectively. The company is producing microchips at the same rate as at the start of the year. For more on TXN's earnings, click here.
Finally, one of the reasons we’re seeing such big numbers in the stock market lately can be seen in TD Ameritrade’s numbers from its fiscal Q3: $1.09 per share swooped beyond the 84 cents per share expected, which even flips to growth year over year from expectations. Revenues of $1.6 billion easily beat the $1.4 billion our analysts had been expecting.
Daily Active Revenue Traders rose 62% to 3.4 million in the quarter, illustrating that Robinhood isn’t the only gainer from a prevalence of new stock traders. TD Ameritrade is scheduled to be purchased by Schwab for $26 billion, and the transaction remains on track. For more on AMTD’s earnings, click here.
Is the Market Rigged?
Computer-driven High-Frequency Traders (HFTs) manipulate the market thousands of times a day – and their gains come at the expense of human investors. Zacks has mounted a Counterstrike to take advantage of the best profit opportunities created by HFTs. Access to these recommendations must be limited; the doors close soon.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Taiwan Semiconductor Manufacturing Company, Boot Barn, Snap, Texas Instruments and TD Ameritrade highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – July 22, 2020 – Zacks Equity Research Shares of Taiwan Semiconductor Manufacturing Company (TSM - Free Report) as the Bull of the Day, Boot Barn (BOOT - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Snap Inc. (SNAP - Free Report) , Texas Instruments (TXN - Free Report) and TD Ameritrade (AMTD - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Taiwan Semiconductor Manufacturing Company is leading the fourth industrial revolution from behind the scenes. TSMC is the largest semiconductor manufacturer in the world (54% share) with a market positioning that is multiples ahead of its competitors. This stock has consistently driven returns for investors, and I would consider them one of the safest tech growth investments in the industry.
After TSMC blew past its Q2 earnings estimates last week, illustrating 34% revenue growth year-over-year and robust margin expansion, leading to the enterprise's most profitable quarter since its inception. The pandemic appears to have provided innovation-driven TSMC with a strong tailwind that I expect will continue to fill the company's sails for years to come.
The world has seen 5 years of digitalization in 5 months. Cutting-edge chip technology has never been in high demand with the expansion of data centers for advanced cloud-computing and preparation for the 5G revolution.
Analysts continue to push their EPS estimates higher and higher, thrusting TSM into a Zacks Rank #1 (Strong Buy).
Building for The Future
TSMC creates 85% of the world's semiconductor prototypes. Its Open Innovation Platform supports start-ups and enterprises alike by reducing design barriers and improving first-time integrated circuit (I.C.) success.
TSMC has seen more semiconductors than any other company in the world. They are working at the largest scale and with the most state-of-the-art technology to improve a firm's "design time, time-to-volume, time-to-market, and ultimately, time-to-revenue," according to TSMC investor relations site.
The most trusted tech names in the world turn to the most trusted semiconductor foundry on the globe for their manufacturing and innovative needs.
More and more tech companies are turning to foundries for their I.C. production needs as the technology required to compete becomes impossible to produce in-house. For example, Samsung and TSMC recently teamed up in the development of 5-nanometer transistors, which would give it the ability to put 30 billion transistors on a chip the size of your fingernail.
This company has an enormous amount of growth ahead of it. Its realized economies of scale have rippled through the company's financials, positioning it to reap the benefits from the next wave of hyperscaling, A.I. development, and the implementation of 5G technology.
Recent Development
Taiwan Semi is Silicon Valley's go-to chip manufacturer. TSMC strategic Arizona plant will manufacture cutting-edge 5-nanometer transistors. The advanced semiconductor plant will cost $12 billion, and its target completion is 2024.
This news followed the Trump Administration voicing its concern about chip-makers reliance on Asia. According to sources familiar with the matter, both the State and Commerce Department are involved with the plans.
Operations on American soil will only deepen Silicon Valley's reliance on this semiconductor manufacturing powerhouse.
Buy The Rally
Innovation-driven chipmakers are forced to use TSMC because no other fabricator can meet their requirements. TSMC has driven over 15% CAGR on its top and bottom lines since it went public in 1994. TSM shares have driven consistent growth for decades and will for decades to come.
This stock offers both capital gain opportunity and a lofty 2% dividend, which provides those apprehensive investors with a guaranteed return that outpaces any "safe" fixed income option.
These shares are trading at 20 times forward earnings, representing a discount to both its sector and the broader market. TSM is currently trading at all-time highs. Still, despite potential short-term volatility, I expect TSM (the largest semiconductor stock by market cap) to be a significant equity market driver through the Roaring 20s. This stock is a robust long-term investment.
Bear of the Day:
Boot Barn was actually a healthy growing company coming into this pandemic-driven economic slowdown, but this natural disaster triggered a rude awakening for this working-class retailer. BOOT shares have plummeted roughly 57% for 2020 thus far, as investors price out this firm’s potential.
The stock had driven up over 500% from Q4 of 2017 until January of this year as the company runway of growth kept extending, but unfortunately, it looks like the business may have overextended itself as the stock price. Analysts have been decreasing their EPS estimates in both the near and long-term, pushing BOOT into a Zacks Rank #5 (Strong Sell).
The Pandemic’s Impact
Just to be entirely transparent off the bat, I am not recommending that you bet against shares of BOOT, I am merely saying these shares may still be in trouble, despite losing most of their value from January.
Boot Barn is retail that sells functional workwear to those in working-class jobs such as construction, manufacturing, oil & gas, electric/plumbing, and agriculture. These are the industries that are seeing some of the most significant employment cutbacks.
This enterprise has a considerable strategic presence in key oil regions around the US, and the massive hit that this industry has taken is going to ripple into Boot Barn’s financials.
Loss of employment and job uncertainty is going to hamper demand for Boot Barn products substantially. It will be years before these industries reach full employment again (if they ever do), and I suspect that this will strain demand for Boot Barn in the coming years.
Boot Barn had been aggressively expanding its western presence with an increasing number of big-box brick-and-mortar storefronts averaging 11,000 square feet. The company currently operates 264 stores in 33 states, representing a 50% storefront increase in the past 5 years. I think they may have overextended themselves. The overhead from its enormous storefronts may be Boot Barn’s undoing.
Financial Situation
The business’s paper-thin margins, combined with massive inventory levels, is quite concerning to me. Boot Barn will likely be forced to sell its products at a sizable discount to clear some of its inventory. This will weigh heavily on its already tight margins.
Boot Barn was able to keep its bottom-line above water in its March quarter, with its e-commerce segment being its life preserver. Still, the company experienced negative free-cash-flows, and analysts estimate that its June quarter will be even worse, with results expected July 29th. According to Zacks Consensus estimates, the company is expected to report an EPS of -$0.16 on sales of $137 million. This would represent its worst sales numbers in 15 quarters.
In the past, the company had been able to rely on its cash flows to support operations, but I do not believe that this will be possible in the coming quarters. As of March 31st, 2020, Boot Barn has $70 million in cash, digging into its revolving lines of credit to maintain operations.
Glimpse of Hope
Boot Barn has a small ecommerce presence (making up just over 15% of its sales), unlike many of its cohorts. Boot Barn stores are largely located in rural areas, which are expected to increase in brick-and-mortar foot traffic more quickly than in non-rural regions. These two silver-linings could be this retailer’s saving grace, but uncertainty remains high, and I would still stay away from BOOT shares.
Key Takeaways
This unprecedented global pandemic has been able to turn a seemingly healthy growing company on its head. There is still hope for this rural retailer, but it is up to management to navigate these murky economic waters. For now, I would keep my distance from these shares until we get more color on management’s strategy to get through this highly uncertain period.
Additional content:
Snap Beats but Drops, T.I. Posts Strong Q2, Ameritrade Rockets
Following Tuesday’s close which saw the Nasdaq underperform the Dow, S&P 500 and the small-cap Russell 2000, tech names posted noteworthy earnings results for calendar Q2 — also with mixed results. The Dow and the S&P were up 0.6% and 0.2%, respectively, while the Nasdaq dropped 0.8% on the day after hitting a new intra-day high early in the session.
Snap Inc. released Q2 earnings results Tuesday afternoon, outperforming on the bottom line by a penny to -$0.09 (down from the -$0.06 in the year-ago quarter) on revenues of $454 million, which bettered the $441.7 million in the Zacks consensus. Average revenue per user beat expectations by a solid dime to $1.91, though Daily Active Users (DAU — a hugely important metric for social media companies) disappointed at 238 million in the quarter where most everybody stayed at home during the coronavirus quarantine.
Further, DAU guidance for Q3 came in at 242-244 million — an improvement over the last quarter, but not one that necessarily merits the 100% run-up over the last three months in SNAP shares, as had been the case. Shares had bottomed out around -12% on today’s news, but have since buoyed back to -5%. For more on SNAP’s earnings, click here.
Texas Instruments, another Zacks Rank #2 (Buy)-rated stock, busted out expectations on both top and bottom lines after Tuesday’s closing bell. Earnings of $1.48 per share flew past the 88 cents in the Zacks consensus, though 33 cents depicts a benefit to earnings not included in the original guidance from the company. Same with quarterly sales: $3.24 billion strode past the $2.96 billion expected.
T.I. also raised guidance for Q3 earnings and revenues: $1.14-1.34 per share and $3.26-3.54 billion, respectively. The company is producing microchips at the same rate as at the start of the year. For more on TXN's earnings, click here.
Finally, one of the reasons we’re seeing such big numbers in the stock market lately can be seen in TD Ameritrade’s numbers from its fiscal Q3: $1.09 per share swooped beyond the 84 cents per share expected, which even flips to growth year over year from expectations. Revenues of $1.6 billion easily beat the $1.4 billion our analysts had been expecting.
Daily Active Revenue Traders rose 62% to 3.4 million in the quarter, illustrating that Robinhood isn’t the only gainer from a prevalence of new stock traders. TD Ameritrade is scheduled to be purchased by Schwab for $26 billion, and the transaction remains on track. For more on AMTD’s earnings, click here.
Is the Market Rigged?
Computer-driven High-Frequency Traders (HFTs) manipulate the market thousands of times a day – and their gains come at the expense of human investors. Zacks has mounted a Counterstrike to take advantage of the best profit opportunities created by HFTs. Access to these recommendations must be limited; the doors close soon.
See Counterstrike Trades Now >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.