The Federal Reserve’s step down to a 50 basis-point rate hike this week was overshadowed by concerns that the Central Bank seemed unlikely to reverse its stance anytime soon.
With the interest rates reaching the highest level in 15 years and set to soar further, concerns over the economy struggling to stay afloat are rising. Moreover, a decline in retail sales for November and a contraction in manufacturing activity in December added to the concerns.
Since these factors are expected to keep the market volatile, it could be wise to load up on fundamentally sound stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), MasterCraft Boat Holdings, Inc. (MCFT), and Mistras Group, Inc. (MG), which look set to dodge the short-term market fluctuations and generate long-term 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 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 US$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 US$40 billion.
On October 27, TSM announced the Open Innovation Platform (OIP) 3DFabric Alliance at the 2022 Open Innovation Platform Ecosystem Forum. TSM’s first-of-its-kind alliance in the semiconductor industry will help customers achieve speedy silicon and system-level innovations and enable next-generation HPC and mobile applications using TSM’s 3DFabric technologies.
For the third quarter of fiscal 2022 ended September 30, TSM’s net sales increased 47.9% year-over-year to NT$613.14 billion ($19 billion), while its income from operations increased 81.5% year-over-year to NT$310.32 billion ($9.62 billion).
During the same period, TSM’s net income increased 79.7% to NT$280.87 billion ($8.70 billion) or NT$10.83 per share, up 79.8% year-over-year.
Analysts expect TSM’s revenue for the fiscal year 2022 to increase 30% year-over-year to $74.63 billion, while its EPS is expected to increase 56.8% year-over-year to $6.46. It has also impressed by surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has dipped 4.9% over the past month to close the last trading session at $77.61. It is trading at 12.3 times its forward earnings, significantly less than the industry average of 19.66.
TSM’s investment worthiness is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TSM has an A grade in Quality and a B for Sentiment. It is ranked #9 of 93 stocks within the Semiconductor & Wireless Chip industry.
Click here for the additional POWR Ratings for Growth, Momentum, Stability, and Value for TSM.
MasterCraft Boat Holdings, Inc. (MCFT)
MCFT designs, manufactures, and markets recreational powerboats through a diversified portfolio of four brands/segments: MasterCraft; Crest; NauticStar; and Aviara.
On November 2, MCFT announced an expansion of its popular entry-level NXT lineup with the all-new 2023 NXT21 and NXT23. According to George Steinbarger, Chief Revenue Officer at MCFT, since it introduced the NXT line in 2015, the company’s entry-level offering has been well-received by customers.
This segment is well placed to continue its momentum even in an increasing interest-rate environment.
For the first quarter of fiscal 2023, ended October 2, MCFT’s net sales increased 29.7% year-over-year to a record $169.5 million. During the same period, due to its ability to mitigate supply chain disruption, thereby enabling more efficient production and throughput, the company’s adjusted EBITDA increased 72.8% year-over-year to a record $35.94 million.
MCFT’s quarterly net income from continuing operations increased 101.4% year-over-year to $24.64 million. This translated to an adjusted net income of $1.43 per share, up 90.7% year-over-year.
MCFT’s EPS for the second quarter of the fiscal is estimated to grow 11% year-over-year to $1.01. Moreover, it has surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 3.3% over the past month and 15.7% over the past six months to close the last trading session at $26.34. Despite the uptrend, it is still trading at 6.05 times its forward earnings, significantly less than the industry average of 12.76.
MCFT has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. It has a grade B for Growth, Value, and Quality. MCFT is ranked #2 of 37 stocks in the Athletics & Recreation industry.
Beyond what is stated above, we have also rated MCFT for Momentum, Sentiment, and Stability. Get all MCFT ratings here.
Mistras Group, Inc. (MG)
MG provides integrated solutions to protect technology-enabled assets. The company operates through three segments: Services; International; and Products and Systems.
On September 15, MG’s Sensoria, an innovative 24/7/365 wind blade monitor, announced a collaboration with Danish blade specialist Bladena to provide an innovative solution to help maximize offshore wind blade integrity and uptime.
The collaboration focuses on providing the ever-growing offshore wind market with solutions for the critical structural challenges wind turbine blades face in harsh environmental conditions.
For the fiscal third quarter ending September 30, MG’s revenue increased 2.2% year-over-year to $178.46 million. During the same period, the net income attributable to MG, excluding special items, came in at $5.01 million or $0.16 per share, up 40.5% and 33.3% year-over-year, respectively.
Analysts expect MG’s revenue and EPS for the current fiscal year (ending December 31, 2022) to increase 1.8% and 28.2% year-over-year to $689.56 million and $0.17, respectively. Both metrics are expected to keep growing over the next two fiscals to $753.16 million and $0.82, respectively.
The stock has gained 19.4% over the past month to close the last trading session at $5.11. In terms of its forward EV/EBITDA multiple, it is trading at 7.23, lesser than the industry average of 10.53.
MG has an overall POWR Rating of B, which translates to a Buy in our proprietary rating system. It also has a grade B for Growth, Value, and Sentiment.
MG is ranked #6 of 43 stocks in the B-rated Outsourcing - Business Services industry.
Click here for additional POWR Ratings for Momentum, Quality, and Stability for MG.
TSM shares were trading at $76.69 per share on Friday afternoon, down $0.92 (-1.19%). Year-to-date, TSM has declined -35.17%, versus a -18.65% 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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