Today, Russia announced its plans to cut its crude production by 5% in response to oil price caps and embargoes imposed by the West. Further constrained supply of energy, ergo higher price, threatens to throw a spanner in the works of Jerome Powell’s narrative of the beginning of the “disinflationary” process.
This announcement has also come at a time when the market is still not done pricing in the estimate-crushing employment data for January and its effect on Fed’s monetary stance and peak borrowing costs for interest-rate burdened businesses.
Amid softened demand, compressed margins, and wild market swings, it could be wise to invest in stocks of fundamentally sound and profitable businesses, Taiwan Semiconductor Manufacturing Company Limited (TSM), Walmart Inc. (WMT), and Pfizer Inc. (PFE), to ensure stable returns.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM provides integrated circuit manufacturing services internationally. This involves manufacturing, packaging, testing, and selling integrated circuits and other semiconductor devices.
On December 29, 2022, TSM held a 3 nanometer (3nm) Volume Production and Capacity Expansion Ceremony at its Fab 18 new construction site in the Southern Taiwan Science Park (STSP). According to the company’s estimates, the 3nm technology will create end products with a market value of $1.5 trillion within five years of volume production.
On December 6, TSM updated that in addition to its first fab in Arizona, which is scheduled to begin production in 2024, it has also started the construction of a second fab, scheduled to begin production in 2026.
The overall investment for these two fabs will be approximately $40 billion. When complete, TSMC Arizona’s two fabs will manufacture over 600,000 wafers annually, with an estimated end-product value of more than $40 billion.
On November 14, Berkshire Hathaway disclosed that it had bought more than $4.1 billion of TSM shares. As of September 30, the conglomerate headquartered in Omaha, Nebraska, owned 60.1 million ADRs of TSM. This significant investment underscores the company’s competitive advantage and long-term growth potential.
TSM’s revenue for January 2022 came in at NT$200.05 billion ($6.65 billion), registering an increase of 3.9% sequentially and 16.2% year-over-year. For the fourth quarter of fiscal 2022 ended December 31, TSM’s net sales increased 42.8% year-over-year to NT$625.53 billion ($20.79 billion), while its income from operations increased 77.8% year-over-year to NT$325.04 billion ($10.80 billion).
During the same period, TSM’s net income increased 78% year-over-year to NT$295.90 billion ($9.83 billion) or NT$11.41 per share.
TSM’s trailing 12-month gross profit margin of 59.56% is higher than the industry average of 48.97%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 68.84% and 44.90% comfortably exceed the industry averages of 11.22% and 3.05%, respectively.
Analysts expect TSM’s revenue for the fiscal year 2023 to increase by 3.1% year-over-year to $76.81 billion. During the next fiscal both revenue and EPS are expected to increase 20.2% and 23.6% year-over-year to $92.29 billion and $7.04, respectively. It has also impressed by surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 19.7% over the past month to close the last trading session at $96.69.
TSM has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TSM also has an A grade for Quality and a B for Momentum. It is ranked #29 of 92 stocks within the B-rated Semiconductor & Wireless Chip industry.
Click here for the additional POWR Ratings for Growth, Sentiment, Stability, and Value for TSM.
Walmart Inc. (WMT)
As a world-renowned big box retailer, WMT offers opportunities to shop an assortment of merchandise and services at everyday low prices (EDLP) in retail stores and through e-commerce platforms. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
On January 26, WMT announced a new-seller savings offer to support new sellers based in the U.S. as they launch on Marketplace. Through this limited-time offer, the company would be offering up to a 25% commission rate reduction for 90 days when trying Walmart-exclusive tools and services. This should help it grow its ecosystem and increase market penetration.
On January 5, WMT provided an update on its ever-growing drone delivery service. According to the company, 36 stores across seven states in the U.S. have drone delivery hubs operated by DroneUp, Flytrex, and Zipline. Together, they completed more than 6000 drone deliveries in 2022. Moreover, WMT is uniquely positioned to offer drone delivery at scale, with 4,700 stores located within 90% of the U.S. population.
On December 20, 2022, WMT announced that it had reached an agreement with 50 states for finalizing the company’s $3.1 billion nationwide opioid settlement framework announced on Nov. 15. This marks a positive step for WMT, which will benefit from moving on from the litigation while helping communities fight the opioid crisis through its pharmacists, who help patients understand the risks about opioid prescriptions.
For the third quarter of the fiscal year 2023 ended October 31, 2022, WMT’s total revenues increased 8.7% year-over-year to $152.81 billion, with strength in Walmart U.S., Sam’s Club U.S., Flipkart, and Walmex.
During the same period, the company’s adjusted operating income increased 4.6% year-over-year to $6.06 billion, while its adjusted EPS increased 3.4% year-over-year to $1.50.
WMT’s trailing 12-month return on common equity of 11.61% is higher than the industry average of 10.40%. Also, the company’s trailing-12-month return on total capital and return on total assets of 10.10% and 3.62% exceed the respective industry averages of 6.17% and 3.26%.
WMT’s revenue and EPS for the fiscal year ending January 2024 are expected to increase 3.1% and 7.3% year-over-year to $620.78 billion and $6.53, respectively. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 9.8% over the past six months to close the last trading session at $141.52.
WMT’s solid prospects are reflected in its overall rating of A, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Stability and Sentiment.
WMT is ranked #8 of 39 stocks within the A-rated Grocery/Big Box Retailers industry.
Click here to see the additional POWR Ratings of WMT for Growth, Value, Quality, and Momentum.
Pfizer Inc. (PFE)
As a world-renowned research-based biopharmaceutical company, PFE discovers, develops, manufactures, sells, and distributes biopharmaceutical products, such as medicines, vaccines, and other therapies. The company operates through two segments: Biopharma and PC1.
On January 6, PFE announced that the U.S. Food and Drug Administration (FDA) accepted for priority review a supplemental Biologics License Application (sBLA) for its 20-valent pneumococcal conjugate vaccine candidate (20vPnC) for the prevention of invasive pneumococcal disease (IPD).
Priority Review designation by the FDA reduces the standard sBLA review period by four months. If approved, this can help expand the protection for the vulnerable pediatric population affected by the disease.
On December 21, 2022, PFE announced that the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) had accepted its regulatory submissions for Etrasimod for individuals living with moderately to severely active ulcerative colitis (UC). In addition to UC, it is being investigated for various immuno-inflammatory diseases.
On December 9, PFE announced its regular quarterly dividend of $0.41 per share of common stock, payable March 3, 2023, to holders of record at the close of business on January 27, 2023. The first-quarter 2023 cash dividend will be Pfizer’s 337th consecutive quarterly dividend.
PFE pays a dividend of $1.64 per share annually, translating to a forward yield of 3.78% at the current price. This compares favorably to the 4-year average dividend yield of 3.63%. The company’s dividend payouts have increased at 5.5% CAGR over the past five years.
During the fiscal year 2022, due to contributions from Paxlovid and Comirnaty, which offset a 7% reduction due to foreign exchange, PFE increased its revenues by 23.4% year-over-year to a record $100.33 billion. Ten medicines or vaccines that generated revenues of more than $1 billion each helped the company achieve this feat.
PFE’s income from continuing operations during the previous fiscal year increased 39.8% year-over-year to $31.40 billion. The company’s adjusted income also increased more than 62% year-over-year to $37.72 billion, or $6.58 per share.
PFE’s trailing 12-month gross profit margin of 65.90% is higher than the industry average of 55.48%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 43.42% and 31.27% comfortably exceed the industry averages of 3.73% and negative 5.84%, respectively.
Excluding its COVID-19 products, PFE expects a strong topline growth of 7% to 9% during the current fiscal. Moreover, it has an impressive earnings surprise history as it has topped the consensus EPS estimates in each of the trailing four quarters.
The stock has dipped 12.5% over the past month to close the last trading session at $43.34.
PFE’s steady prospects are reflected in its overall POWR Rating of B, which translates to a Buy in our proprietary rating system. It has an A grade for Value and a B for Quality.
PFE is ranked #26 of 172 stocks in the Medical – Pharmaceutical industry.
Click here for additional POWR Ratings for PFE’s Growth, Stability, Sentiment, and Momentum.
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TSM shares were trading at $95.35 per share on Friday morning, down $1.34 (-1.39%). Year-to-date, TSM has gained 28.00%, versus a 6.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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