TipRanks ‘Perfect 10’ List: These Semiconductor Stocks Tick All the Boxes

The Horrible Year, 2022, is behind us now, fading into the rear-view mirror of memory and good riddance. Markets fell hard over the past 12 months, with a 19% drop in the S&P 500 and a 33% collapse in the tech-oriented NASDAQ. But the indexes are averages – and the losses, however broad-based, don’t mean that every individual stock is facing hard times or further losses ahead.

We can get a handle on those stocks with solid prospects, but we’ll need a tool to sort through the accumulated reams of market data. The Smart Score, based on the TipRanks algorithms, does just that – and more. The tool also collates the data according to 8 factors all known to match up with future outperformance, and then it places the combined data on a simple scale of 1 to 10. Investors can get a snapshot of any stock, just by checking the Smart Score – and a ‘Perfect 10’ score will clearly indicate a stock that deserves a closer look.

So we’ve gone and done just that. Using the Smart Score tool to browse the thousands of publicly traded stocks, we’ve found two that feature a Perfect 10. Interestingly enough, each is a semiconductor chip company, underscoring the vital role that chips continue to play in the economy despite their ongoing supply chain crunch and shortages. Each also features a Strong Buy consensus rating and upwards of 30% upside potential for the coming year. It’s not just a perfect score, it’s a perfect combination of bullish indicators.

Fresh from the TipRanks database, here are the details on these two ‘Perfect 10’ chip stocks.

Taiwan Semiconductor Manufacturing (TSM)

We’ll start with a leader in the semiconductor chip industry, Taiwan Semiconductor. This company is one of the largest, in one of Taiwan’s largest industries. The island is a huge supplier of semiconductor chips, and hosts numerous chip design and manufacturing companies, especially the foundries that make chips on contract for outside designers. TSM, with its $379 billion market cap, is a perennial peer of the world’s largest semiconductor chip firms.

Last year, Taiwan Semi saw total revenues of $56.84 billion. That was an impressive total, but the company nearly matched it in the first 9 months of 2022 – with a 3-quarter revenue total of $55.83 billion. The third quarter alone, the last one reported, saw a top line of $20.23 billion, a figure that was up more than 11% from Q2 and almost 36% year-over-year. The company’s EPS for 3Q22 came in at $1.79; this figures was up more than 79% y/y.

For investors, Taiwan Semi’s solid results are doubly good news. They bring in earnings – and the company shares those earnings with stockholders. TSM pays out a regular dividend, and has since 2004. The company boasts that it has never reduced the dividend payment. The most recent declaration was made for 44 cents base dividend per US share; at that rate, the dividend annualizes to $1.76 and yields 2.3%. The next payment is scheduled for this coming March.

On the Smart Score, Taiwan Semi shows positive figures on several of the key factors. These include the sentiment of financial bloggers – always a fickle crowd – who are 88% positive on TSM shares; the press, where news sentiment for now is 100% positive; and the crowd wisdom, which shows that individual investors have increased their holdings of TSM by more than 5% over the past 30 days. Also, of the hedges tracked by TipRanks, the funds increased their holdings in TSM by over 53.5 million shares last quarter. It all adds up to a ‘Perfect 10’ for the stock.

Needham analyst Charles Shi takes a bullish stance on Taiwan Semiconductor and has added the stock to the Needham Conviction List.

“TSMC leads all competitors in both wafer process and advanced packaging technologies. We attribute the company’s success to its foundry business model, and note that the economies of scale in a high fixed-cost business like foundries favor the largest players, like TSMC,” says Shi. “We look for TSMC’s revenue growth, primarily driven by steady introductions of new technology nodes that are largely unaffected by industry cyclicality, to remain strong and support a 10-15% earnings CAGR over the next few years. As such, we recommend TSMC stock as a core holding for investors who look to invest in semiconductors, which we view as the foundation of the expanding digital economy.”

Keeping this in mind, Shi rates the shares as a Buy, while a $110 price target indicates his confidence in a 48% upside potential for the next 12 months. (To watch Shi’s track record, click here.)

The Strong Buy consensus rating on this stock is supported by a unanimous 5 positive analyst reviews. The shares are currently priced at $74.49, and their $104 average price target suggests an upside of 40% on the one-year time horizon. (See Taiwan Semi’s stock forecast at TipRanks.)

ASML Holding (ASML)

The second stock we’ll look at is ASML, a Dutch firm that is not a chip stock specifically – but is essential to the chip-making industry. ASML is a provider of photolithography equipment, the hardware, software, and services that make it possible to design and manufacture silicon semiconductor microchips. These tools use optical imaging methods to press circuit patterns onto the silicon wafers that become the end-product chip – and without them, there would be no microchips. ASML is the global leader in its particular essential niche.

In the last quarter reported, 3Q22, the company posted 5.8 billion Euro in top line revenue and 1.7 billion Euro in net income. In US dollars, these figures come to $6.18 billion and $1.81 billion respectively. At the bottom line, ASML reported a GAAP EPS of 4.29 Euro, or $4.57 in US currency. Looking ahead, the company is projecting approximately 21 billion Euro in total sales for the current year.

ASML’s results were supported sales of 80 new lithography units sold in the quarter, along with 6 used units. These numbers were down slightly q/q; the second quarter saw sales of 83 new units and 8 used. The company finished the quarter with 3.36 billion Euro in cash on hand, compared to 4.4 billion Euro in liquid assets at the end of Q2.

Turning to the firm’s Smart Score, we find that ASML boasts a solid return on equity, of 57% over the trailing 12-month period. The financial bloggers are 95% bullish on this stock – and the hedge funds bought 268,600 shares last quarter.

Covering this stock for JPMorgan, Sandeep Deshpande lays out the bull case. “ASML is in a sweet spot with the main semi equipment technology transition being the shift to EUV (extreme ultraviolet lithography) in logic, followed by shift to EUV in DRAM,” the analyst said. “These trends will mean that lithography will now secularly increase as a % of front-end semi equipment spending till this transition is completed in 2024 or so. ASML is the sole supplier of EUV tools and its market share in litho segment should exceed 80-89% it has been in the last decade driven by higher EUV ASP.”

Deshpande uses his comments to support an Overweight (Buy) rating, and his price target, set at $710, implies a potential one-year upside of 30% from current levels. (To watch Deshpande’s track record, click here.)

ASML has picked up 6 recent analyst reviews, and they all agree that this is a stock to Buy, making the Strong Buy consensus unanimous. Shares have an average price target of $741.67 and a trading price of $546.40, suggesting a gain of 36% by the end of 2023. (See ASML’s stock forecast at TipRanks.)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.