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Motley Fool Issues Rare “All In” Buy Alert
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Bear markets are awful.
Unless, of course, you view them as an opportunity to scoop up shares of incredible businesses at wild discounts. We’ve all thought it: I wish I had bought stock X at crazy price $Y when the market was punishing it in year Z. Well, 2022 may very well be your chance to make good on that wish.
Three Fool.com contributors think new Warren Buffett stock Taiwan Semiconductor Manufacturing (TSM 0.97%), e-commerce titan Amazon (AMZN -0.75%), and top semiconductor technologist ASML Holding (ASML 0.70%) are buys during this bear market. Here’s why.
Billy Duberstein (Taiwan Semiconductor Manufacturing): While Taiwan Semiconductor Manufacturing Company, or TSMC, got a nice 10% boost on the news Warren Buffett took a big stake in the world’s largest chipmaker, the stock is still down 50% from its all-time high and still trades for less than 15 times earnings.
That’s not too shabby for a company that demonstrates the ability to pass on higher prices to its customers, even if those customers are as powerful as Apple and Nvidia. When confronted with rising materials and freight costs this year, TSMC was able to pass on price increases with no customer refusing, according to Taiwan’s Economic Daily News.
This is because TSMC dominates the semiconductor manufacturing industry, producing more than 50% of all semiconductors globally, while also leading the production of the most advanced semiconductors made on the latest node.
While both Intel and Samsung are investing heavily in their foundry businesses, with the goal of catching up to TSMC’s technology lead, it’s far from assured these companies will be able to — especially as TSMC invests another $36 billion this year in capital expenditures. By comparison, Intel just lowered its 2022 capex plans to $21 billion, amid its own business challenges this year.
Leading-edge semiconductor production is only becoming more and more difficult, as the distance between transistors shrinks to a matter of angstroms. Thus, it may prove difficult for TSMC’s peers to catch up — especially as TSMC is in a stronger position financially as well as technologically.
On its recent conference call, TSMC management said that while the semiconductor industry will likely shrink in 2023 amid a global downturn, TSMC will still grow, due to its competitive advantages:
We expect probably 2023, the semiconductor industry will likely decline. But TSMC also is not immune, but we believe our technology position, strong portfolio in HPC [high-performance computing] and longer-term strategic relationship with customer will enable our business to be more resilient than the overall semiconductor industry. And that’s why we say in 2023, still a growth year for TSMC, and the overall industry probably will decline.
A company that can pass along price increases to customers and grow even when its overall industry is declining is no doubt quite attractive — especially when the stock trades for such a reasonable valuation. No wonder Buffett likes the stock.
Anders Bylund (Amazon): E-commerce and cloud computing giant Amazon is in the dumps right now. The stock has lost more than $1 trillion in market value from the all-time peak in the summer of 2021. The run-up that started with the COVID-19 lockdowns in the spring of 2020 is just a memory now. Amazon share prices are back where they were at the start of 2020, missing out on a dividend-adjusted 27% gain for the S&P 500 index.
The prevailing Amazon thesis today is that online shopping has peaked and there’s nowhere to go but down. The company seemed to support that idea when it announced layoffs just ahead of the holidays. The stock sold off further as a result.
I think that’s a huge mistake. Amazon bears are missing out on a massive moneymaking opportunity here.
You can’t stop the retail market from moving online over time. Sure, there will always be a niche market for brick-and-mortar stores where shoppers can touch and smell the goods. However, most people will eventually prefer the lower costs found on online shopping portals with automated warehouses and ultra-low overhead costs. This revolution is only getting started, as e-commerce sales account for less than 15% of the total retail market today.
So Amazon is pumping the brakes on operating costs for this holiday season, in the middle of an inflation-powered economic crisis. But the stormy seas must eventually subside, and Amazon’s business growth should hit the ground running again whenever that happens. Meanwhile, I’m excited to see Amazon’s stock price going nowhere in three years while annual sales have increased by 80%.
AMZN data by YCharts
In short, the rumors of Amazon’s death are exaggerated. This giant isn’t going away, and the company’s best days are still far in the future. Conventional wisdom tells investors to buy low and sell high, and the best time to follow that advice is when there’s blood on the Street. This bear market has made Amazon a screaming buy for long-term investors.
Nicholas Rossolillo (ASML Holding): If you were looking for a green flag before investing in ASML Holding, management just waved one better — a purple-ish flag. The Dutch company, which has a monopoly on extreme ultraviolet (EUV) lithography equipment used in making the most advanced chips around, just provided quite the update to its 2025 financial targets.
At the company’s investor day a year ago, it predicted it would generate revenue in between $24 billion and $30 billion by 2025. But things have changed. Semiconductor demand is through the roof and only headed higher as chips proliferate in all sorts of consumer devices, industrial equipment, and data centers. The U.S. CHIPS Act and other government programs from other countries are helping boost chip manufacturing. As a result, ASML now thinks its revenue can reach a range of $30 billion to $40 billion by 2025. That’s a 30% increase from the outlook last year, at the midpoint of guidance.
For reference, ASML revenue was just over $21 billion in the last 12-month stretch. Assuming it only reaches the low end of its guidance — $30 billion — in the next three years, that still represents a compound annual growth rate of 11%. Not bad, ASML.
Bear in mind that ASML’s position as a critical chipmaking equipment supplier (and the only one with irreplaceable EUV technology, no less) means it will remain highly profitable. It pays a rising dividend and returns a generous amount of its remaining free cash flow back to shareholders via stock repurchases. Management just boosted that buyback authorization by another $12 billion.
In recent weeks, ASML stock rebounded in a dramatic fashion. However, as of this writing, the stock still remains down over 30% from where it was one year ago. With a lot of reasons to feel even more optimistic about this company’s prospects than before, now still looks like an incredible time to buy and hold for the next few years.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Amazon, Intel, and Nvidia. Billy Duberstein has positions in ASML Holding, Amazon, Apple, and Taiwan Semiconductor Manufacturing and has the following options: short January 2023 $210 calls on Apple. His clients may have positions in the companies mentioned. Nicholas Rossolillo has positions in Amazon, Apple, ASML Holding, and Nvidia. His clients may have positions in the companies mentioned. The Motley Fool has positions in and recommends ASML Holding, Amazon, Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long March 2023 $120 calls on Apple, short January 2025 $45 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/21/2022.
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