We recently compiled a list of the 8 Most Profitable Blue Chip Stocks to Invest In. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other profitable blue chip stocks.
The September inflation report came in hotter than expected and showed that it remains sticky. Headline inflation rose by 2.4%, slightly above the anticipated 2.3%, and down from 2.5% in August. Month-over-month, CPI increased by 0.2%, exceeding the forecast of 0.1%.
Core inflation, excluding food and energy, also came in higher than expected at 3.3%, compared to the anticipated 3.2%, marking a slight increase from August. On a monthly basis, core CPI rose by 0.3%, which matched August’s figures but was above expectations of 0.2%.
Following the report, the market is expecting a 25 basis points rate cut to no rate cuts in the upcoming Fed meeting. According to the CME FedWatch tool, 79.9% of interest rate traders expect the rate cuts to be at 450-475 bps at the coming Fed meeting while 20.1% expect the rate cut to stay the same. At the beginning of the month, 32.1% expected a 50 bps rate cut, while 67.9% anticipated a 25 bps cut.
Understanding Inflation Trends and Federal Reserve Strategy
Despite the sticky inflation, IBM’s vice chair, Gary Cohn believes that the Fed will cut rates by 100 bps this year. In an interview at CNBC’s ‘Money Movers’, he suggested that the U.S. is experiencing what a soft landing looks like, with inflation decreasing but not steadily. He indicated that reaching the Fed’s 2% target will be challenging, as inflation rates are likely to fluctuate around this level.
Cohn noted that for the first time in nearly two decades, the Fed is balancing both sides of its dual mandate, employment, and price stability, after focusing primarily on one at a time. He believes the Fed is making the right decisions and is currently in a delicate position as it missed meeting opportunities this year.
Cohn expects that the Fed will implement a total of 100 basis points in rate cuts this year, likely consisting of 25 basis point reductions over the next couple of months. When asked about inflation targets, he expressed a preference for slightly exceeding the target inflation rate, suggesting that a rate of around 2.2% would be more acceptable in a growing economy than undershooting the target.
Cohn also highlighted concerns about geopolitical risks and said that global tensions could lead to inflationary pressures by disrupting supply chains and increasing shipping costs.
Our Methodology
For this article, we use stock screeners to identify nearly 30 stocks above $100 billion market cap and $10 billion TTM net income. Next, we narrowed our list to 8 stocks that had a 5-year net income compound annual growth rate of above 10% and were most widely held by institutional investors. The most profitable blue chip stocks are listed in ascending order of the hedge fund sentiment, which was taken from Insider Monkey’s Q2 database of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a complex network of integrated circuits used in logic semiconductors.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Market Cap: $970.523 Billion
5-Year Net Income CAGR: 22.90%
TTM Net Income: $29.908 billion
Number of Hedge Fund Holders: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the pioneer of the pure-play foundry model and has maintained its position as the top semiconductor foundry for decades. By 2023, it served 528 customers and produced nearly 12,000 products for multiple sectors such as high-performance computing, smartphones, IoT, automotive, and consumer electronics.
The company collaborates with global customers and partners, using advanced technologies and design solutions to promote innovation in the semiconductor industry. It has operations in Asia, Europe, and North America. Its manufacturing facilities, including several wafer fabs in Taiwan, the U.S., and China, produced over 16 million 12-inch equivalent wafers last year.
The company is further expanding its business at a fast pace, especially after the rise of AI. On August 20, ESMC, a joint venture between Taiwan Semiconductor (NYSE:TSM), Bosch, Infineon, and NXP, celebrated the groundbreaking of its first semiconductor fab in Dresden, Germany. European Commission President Ursula von der Leyen announced a €5 billion aid package to support the project.
The facility will produce advanced semiconductors for Europe’s automotive and industrial sectors and aims for a monthly capacity of 40,000 wafers. The total investment is projected to exceed €10 billion and generate around 2,000 direct high-tech jobs and further indirect employment opportunities.
Taiwan Semiconductor (NYSE:TSM) reported its net revenue for September 2024 on October 9, which reached approximately NT$251.87 billion (NT$1 = US$0.031) on a consolidated basis. This represents a 0.4% increase compared to August 2024 and a 39.6% rise from September 2023. For the period from January to September 2024, total revenue amounted to over NT$2 trillion, representing a nearly 32% growth compared to the same timeframe in 2023. The company will announce its full earnings on October 17.
The company ranks at 7 on our list of most profitable blue chip stocks.
Diamond Hill Capital stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“On an individual holdings’ basis, top contributors to return in Q2 included our long positions in Alphabet, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Microsoft. Semiconductor manufacturer Taiwan Semiconductor’s (TSMC) fundamentals remain solid as demand for its chips continues growing — particularly as the machine learning and cloud computing trends gain more traction.”
Overall TSM ranks 7th on our list of the most profitable blue chip stocks to invest in. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.