The Fed is expected to keep hiking rates in the coming months to achieve their target inflation of 2%. However, the Fed had indicated a slowdown in the rate hike aggression, and many are now predicting a 50-bps rate hike in December, down from the 75-bps increases seen over the last four launches.
Moreover, economists surveyed by Bloomberg expect inflation to have slowed again last month, projecting headline prices to have risen 0.3% in November and 7.3% over last year.
In addition, Bank of America (BAC) CEO Brian Moynihan believes that the American consumer is in "very good shape." Also, the U.S. economy remains resilient despite widespread headwinds. The consumer sentiment index climbed to 59.1 in December from 56.8 in November, turning out better than consensus estimates.
Given this backdrop, quality stocks Microsoft Corporation (MSFT) and Taiwan Semiconductor Manufacturing Company Limited (TSM) could be ideal additions to your portfolios. These stocks could be real bargain buys right now.
Value investing has been gaining traction amid the broader market sell-off this year. Investors' interest in value stocks is evident from the Vanguard Value ETF's (VTV) 5.1% gains over the past six months.
Microsoft Corporation (MSFT)
MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.
On December 12, 2022, MSFT announced a decade-long partnership with the London Stock Exchange Group (LSEG) and took approximately a 4% stake in it. LSEG will spend around $2.80 billion on cloud-related products with MSFT. This partnership is expected to be a historic chapter in data analytics, cloud, and Artificial Intelligence in finance.
In addition, on December 7, 2022, a new Industry Data for Society Partnership was co-launched by MSFT, GitHub, Hewlett Packard Enterprise (HPE), LinkedIn, Northumbrian Water Group, R2 Factory, and U.K. Power Networks, a pioneer in cross-industry partnership, to enhance accessible private-sector data for social benefits.
MSFT's forward P/E of 26.45x is 14.1% lower than its five-year average of 30.79x. Its forward Price/Book of 8.89x is 13.9% lower than the five-year average of 10.31x.
For its fiscal 2023 first quarter that ended September 30, 2022, MSFT's total revenue came in at $50.12 billion, up 10.6% year-over-year. Its adjusted net income came in at $17.56 billion, up 2% year-over-year, while its adjusted EPS came in at $2.35, up 3.5% year-over-year. Also, its operating income came in at $21.52 billion, up 6.3% year-over-year.
Analysts expect MSFT's revenue to be $212.46 billion in 2023, representing a 7.2% year-over-year rise. The company's EPS is expected to increase 3.7% year-over-year to $9.55 in 2023. It surpassed EPS estimates in three of four trailing quarters. Over the past month, the stock has gained 2.2% to close the last trading session at $252.51.
MSFT's POWR Ratings reflect this promising outlook. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has a B grade for Stability, Sentiment, and Quality. It is ranked #9 out of 52 stocks in the Software – Business industry. Click here for MSFT's additional POWR Ratings for Growth, Value, and Momentum.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally.
On October 26, 2022, TSM announced the Open Innovation Platform 3DFabric Alliance at the 2022 Open Innovation Platform Ecosystem Forum.
Dr. L.C. Lu, TSM's fellow and vice president of design and technology platform, said, "Through the collective leadership of TSMC and our ecosystem partners, our 3DFabric Alliance offers customers an easy and flexible way to unlock the power of 3D IC in their designs."
TSM's forward EV/EBITDA of 7.54x is 39.4% lower than the industry average of 12.45x, while its forward Price/Cash Flow of 8.06x is 54.7% lower than the industry average of 17.79x.
TSM's net revenue came in at $20.23 billion for the third quarter that ended September 30, 2022, up 47.9% year-over-year. Its comprehensive income came in at $10.33 billion, up 101% year-over-year, while its EPS came in at $1.79, up 79.8% year-over-year.
Street expects TSM's revenue to increase 31.8% year-over-year to $74.86 billion in 2022. Its EPS is expected to increase 56.6% year-over-year to $6.45 in 2022. It surpassed EPS estimates in all four trailing quarters. Over the past month, the stock has gained 8.9% to close the last trading session at $80.43.
TSM has an overall B rating equating to Buy in our POWR Ratings system. It has an A grade for Quality and a B for Growth and Sentiment.
It is ranked #12 out of 93 stocks in the Semiconductor & Wireless Chip industry. Click here to see the additional POWR Ratings for TSM (Value, Momentum, and Stability).
MSFT shares rose $2.61 (+1.03%) in premarket trading Tuesday. Year-to-date, MSFT has declined -24.22%, versus a -15.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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