Flip the Script On Chip-Market Challenges with Taiwan Semiconductor Stock

Stocks to buy

Known as a silicon-wafer fabricator or “fab,” Taiwan Semiconductor (NYSE:TSM) struggled along with other tech part makers amid 2021’s global supply shortage. Consequently, TSM stock chopped around and made little progress that year.

image of TSM semiconductor office building

Source: Sundry Photography / Shutterstock.com

Now however, Wall Street is warming up to Taiwan Semiconductor in 2022. This company is rarely buzz-worthy in the U.S., but suddenly — traders are talking and the share price is heading north.

As it turns out, TSM stock is rewarding patient investors and well-positioned to combat the microchip shortage. The billion-dollar question then, is whether it’s wise to take a long position now.

No worries, as today we’ll give you a breakdown of the breakout, along with a deep dive into the chip chatter. In the end, you might just have to broaden your geographic horizons as Taiwan Semiconductor gives America’s gadget-part purveyors a run for their money.

A Closer Look at TSM Stock

2021 was a frustrating wash for TSM stockholders, as share prices started and ended the year near $120.

Actually, that’s not entirely true because Taiwan Semiconductor does pay dividends, which has boosted long-term shareholder returns. Currently, the company pays a forward annual dividend yield of 1.39%.

In mid-January however, patient investors were finally rewarded as TSM stock leaped to $140. It just goes to show that “time in the markets” can be a better strategy than “timing the markets.” You never know when the big breakout might happen.

By the way, even after the share-price increase, Taiwan Semiconductor’s trailing 12-month price-to-earnings ratio is 35.17. That’s not unreasonably high, so value-focused investors can still buy the shares with a clear conscience.

Additionally, TSM stock has a five-year monthly beta of 1.02. In other words, the stock moves about as fast as the S&P 500, so it’s a low-volatility asset that’s appropriate for most portfolios.

Why Wall Street Is Feeling Bullish

To steal a phrase from fellow InvestorPlace contributor William White, financial traders are feeling pretty chipper about chipmaker Taiwan Semiconductor.

Who could blame them, really? During 2021’s fourth quarter, Taiwan Semiconductor increased its revenue by 21.2%. Over the same time frame, the company’s net income and diluted earnings per share both grew 16.4%.

That’s not all, though. As White observed, Taiwan Semiconductor’s outlook for 2022’s first quarter is also a highlight of the company’s earnings report.

Apparently, the chipmaker expects to generate $16.6 billion to $17.2 billion in revenue, while achieving gross profit margin between 53% and 55%.

That’s impressive — but could there be even more positive news to report?

Dropping a Bombshell

Taiwan Semiconductor’s fiscal data and outlook pleased Wall Street and boosted TSM stock. But there’s another announcement that could have implications for the company, as well as for the broader microprocessor market.

According the Taiwan Semiconductor, the company’s management expects “the 2022 capital budget to be between US$40 billion and US$44 billion.”

The company dropped a real bombshell with that statement. A year earlier, Taiwan Semiconductor’s planned capital expenditure budget was $22 billion.

Thus, Taiwan Semiconductor is effectively doubling down on its production capacity. This could have a major positive impact on chip-challenged manufacturers of smartphones, game consoles, automobiles and a range of other tech-enabled products.

There is a risk here, as Taiwan Semiconductor’s management may be overconfident in the company’s ability to alleviate the semiconductor deficit.

If Taiwan Semiconductor’s production increase makes the company an industry front-runner however, then the $40+ billion investment could yield remarkable returns.

The Bottom Line

Some of you reading this might never have considered investing in foreign companies before. If you’re open to it, TSM stock is as good a place to start as any.

It’s a low-beta stock that pays a dividend and is breaking out to the upside. What more could anybody ask for?

So there’s no need to let borders be barriers in your tech-focused portfolio. Taiwan Semiconductor has a goal that’s truly global in scope and import: alleviate the chip shortage, and bring the world a little bit closer to normal again.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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