TSM: 3 Stocks That Could Have Significant Upside in 2021

Wall Street is extending the post-election rally, and investors are witnessing the best week since April. US manufacturing activity accelerated more than expected in October, near a two-year high. However, another 751,000 Americans claimed first-time unemployment benefits last week and the number of coronavirus infections in the country is still rising at an exponential rate. There persists a huge disconnect between the troubled economy and the stock market.

As the last quarter of the year has already begun, it’s perhaps the right time to start shortlisting stocks for the coming year. Experts believe the economic recovery is intact and likely forming a V-shape. The Morgan Stanley CIO, who called the October pullback, has recently said that “the worst of the sell-off is over, and investors should buy stocks before prices rise in 2021.”

While we expect the market and the economy to converge eventually, fundamentally-sound stocks like Taiwan Semiconductor Manufacturing Company Limited (TSM), The Procter & Gamble Company (PG), and Nike, Inc. (NKE) could see significant upside in the coming year as they are well-positioned to keep capitalizing on the pandemic-driven changes in consumer and business behavior.

Taiwan Semiconductor Manufacturing Company Limited (TSM)

TSM engages in the computer-aided design, manufacturing, packaging, testing, sale, and marketing of integrated circuits and other semiconductor devices. It also offers customer service, account management, and engineering services. The company serves its customers in the following segments: Computer, Communications, Consumer, and Industrial and Standard.

TSM is one of the world’s largest semiconductor manufacturers playing a pivotal role in the chip revolution. The company developed the world’s first 7-nanometer (nm) chip, which powered Apple’s (AAPL), iPhone X. The ongoing work and learning from home trends enhanced sales of PCs, smartphones, and servers that use TSM’s chips.

TSM recently released its third-quarter earnings, where its revenue surged 29%, and EPS increased by almost 36% on a year-over-year basis. The majority of this growth came from its 5nm and 7nm chips. TSM is also the key beneficiary of the iPhone 12 launch and the arrival of Sony’s (SNE) most recent PlayStation 5 and Microsoft’s (MSFT) Scarlett game console.

As 5G adoption increases, the demand for smartphones, high-performance, automotive, and internet-of-things chips will rise. Hence, analysts expect TSM’s next year’s revenue and EPS to rise by 11.8% and 6.2%, respectively.

3 STOCKS TO DOUBLE THIS YEAR

TSM closed yesterday’s trading session at $90.43, gaining 58.4% year-over-year. The stock hit its 52-week high of $91.27 last month and is presently trading just 0.9% below the high. The stock gained more than 72% in the past six months.

How does TSM stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

A for Peer Grade

B for Industry Grade

B for Overall POWR Rating.

The stock is also ranked #14 out of 86 stocks in the Semiconductor & Wireless Chip industry.

The Procter & Gamble Company (PG)

PG manufactures and sells branded consumer packaged goods (CPG) with operations in approximately 70 countries worldwide. PG is a consumer staples company that has been around for 182 years. The company operates through six segments – Beauty, Grooming, Health Care, Fabric Care & Home Care, Baby, Feminine & Family Care, and Corporate.

PG has been a big pandemic winner as it witnessed a rising demand for CPG and hygiene products during the crisis. The company has been consistently delivering record sales and profits in this extraordinary environment while offering a 2.25% dividend yield that has been raised for 64 consecutive years. PG is focusing on liquidity enhancement and has recently announced the pricing of its $1.5 billion debt tender offer.

The last financial results reported by PG was for its fiscal first quarter ended in September 2020. The company delivered net sales of $19.32 billion, increasing 9% year-over-year, primarily driven by a 7% increase in organic shipment volume compared to the year-ago quarter. EPS for the quarter came in at $1.63, growing 20% year-over-year and beating the consensus estimate by 14.8%.

Analysts expect PG’s top-line and EPS to grow 3.2% and 6.3%, respectively, next year. The stock closed yesterday’s trading session at $142.38, gaining 16.8% year-to-date. PG is up more than 24% in the past six months and is presently trading just 2.4% below its 52-week high of $145.87.

PG’s strong fundamentals are reflected in its POWR Ratings, it has a “Strong Buy” rating with an “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. Within the Consumer Goods industry, it’s ranked #1 out of 34 stocks.

Nike, Inc. (NKE)

NKE is one of the largest and oldest global suppliers of athletic apparel and footwear. Associated with the iconic slogan “Just do it,” the company offers NIKE brand products in six categories, including running, NIKE basketball, the Jordan brand, football, training, and sportswear.

Many people have been committing to improving their health due to quarantine and dedicating themselves to a serious fitness regimen, and NKE has successfully been able to meet the increased demand for fitness apparel amid the pandemic. The company is set to release new products in Kyrie Irving’s signature line. It will launch its four colorways on November 11th followed by the BK Black colorway on November 23rd.

NKE has successfully leveraged its digital footprint this year which is reflected in its fiscal first-quarter ended August 2020 results. The company’s digital sales surged 82% year-over-year while direct sales of $3.7 billion increased by 12% compared to the year-ago quarter. EPS for the quarter came in at $0.95, increasing 10% year-over-year and surpassing the consensus estimate by 102%.

The street expects NKE’s revenue and EPS to grow 11.5% and 28.6%, respectively, next year. The stock closed yesterday’s trading session at $129.70, gaining 29% year-to-date. NKE hit its 52-week high of $131.38 last month and is presently trading just 1.3% below the high. NKE is up more than 44% in the past six months.

NKE’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade, Peer Grade, and Industry Rank and a “B” for Buy & Hold Grade. Among the 34 stocks in the Athletics & Recreation industry, it’s ranked #3.

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TSM shares were trading at $90.91 per share on Friday afternoon, up $0.48 (+0.53%). Year-to-date, TSM has gained 59.22%, versus a 10.23% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...