Warren Buffett’s Berkshire Picks Up $5 Billion TSMC Stake

 
image

(Bloomberg) — For investors looking for a dip-buying opportunity in the global chip industry, Berkshire Hathaway Inc. may have a recommendation: Taiwan Semiconductor Manufacturing Co.

Warren Buffett’s conglomerate picked up a $5 billion stake in the firm in the recent quarter amid a rout that wiped out over $250 billion from the stock. It hasn’t commented publicly on the deal but market watchers attribute the purchase to TSMC’s cheap valuations, technology leadership and solid fundamentals.

Berkshire’s buy, along with a similar move by Tiger Global Management LLC, may suggest that value is emerging in the chip industry after a turbulent period marked by slowing demand and US-China tensions. A growing number of Wall Street banks have reaffirmed bullish calls on TSMC, with analysts at Morgan Stanley saying the stock has reached “a good entry point.”

“With its superior technology leadership, TSMC is a great value play in the long-term if you look past the current semiconductor downcycle,” said Andy Wong, fund manager at LW Asset Management. “Buffett could be investing in the next-decade growth with burgeoning demand from IoT, renewable and automobiles.”

TSMC’s shares have jumped about 10% in Taiwan since Berkshire’s acquisition was disclosed last week. Morgan Stanley says they are trading below their downcycle valuation with a 30% to 40% discount due to geopolitical risks, according to a Nov. 8 note.

The stock has a valuation multiple of around 12.6 times based on its estimated earnings for the next year, according to data compiled by Bloomberg. Goldman Sachs Group Inc. estimates that to be the lower end of the 10-year average. The company is cheaper than most of the members of the Philadelphia Stock Exchange Semiconductor Index, which tracks the biggest US-listed chip companies.

“We expect TSMC to continue to show its resilience versus other peers during the industry downcycle given its superior execution,” Goldman analysts wrote in a Nov. 16 note. Valuations are attractive and the firm is best placed to capture the industry’s long-term structural growth in 5G, artificial intelligence, high-performance computing and electric vehicles, they added.

Cash Flow

TSMC also has another advantage: it has managed to deliver double-digit sales growth and a gross margin well above 50% this year despite a slowdown in the sector. This has capped the stock’s year-to-date loss at 21%, helping it outperform peers such as Micron Technology Inc. and SK Hynix Inc.

The Taiwanese company’s history of healthy cash flow and stable dividends may have also helped draw Buffett, according to analysts.

“TSMC (and other foundries) all have to incur heavy capital expenditure in the race for tech/capacity leadership, but history shows TSMC has managed to generate respectable cash flows despite capex,” said Phelix Lee, equity analyst at Morningstar Asia Ltd. The company has a track record of paying dividends since the 2000s, he added.

The stock’s latest dividend yield is 2.6%, higher than Micron’s 0.8% and almost on par with SK Hynix’s, according to data compiled by Bloomberg.

Still, while Buffett’s bet has boosted retail sentiment toward the stock, the shares may continue to experience swings in the short term due to geopolitical risks and inventory adjustments in the chip industry.

The semiconductor sector is at the center of a growing rift between the US and China as the two nations vie for leadership in the global technology industry. Washington has imposed elevated sanctions on high-end chips produced for Chinese customers specifically to forestall them making their way into the hands of the Chinese military.

To reflect the risks, analysts have cut the average target price for TSMC’s stock by about 30% since February. Its shares listed in the US are down over 30% this year, in line with the drop posted by the global semiconductor benchmark.

“Investors are worried about higher-than-usual inventory, which shows no signs of easing yet,” said Jason Su, fund manager at Cathay Taiwan 5G Plus Communications ETF. “Companies including TSMC said earlier they expect inventory correction to continue through first half next year,” he said, adding that chip stocks are likely to rebound after inventory adjustments are completed.

©2022 Bloomberg L.P.

 
Trending Ideas

Featured Stocks On The Move

Daily Rundown
  • Sportswear, Blockchain, Medical, E-commerce

    On Holding AG (ONON) On Holding AG is a premium sportswear company specializing in high-performance running shoes and apparel. Known for its innovative cushioning technology, the company caters to athletes... Read More

  • Chemicals, Venture, Energy, Insurance

    Flexible Solutions International Inc. (FSI) Flexible Solutions International Inc. develops and manufactures biodegradable and environmentally safe chemicals. The company specializes in water and energy conservation products, serving industries like agriculture... Read More

  • Data, Blockchain, Education, Semiconductors

    LiveRamp Holdings, Inc. (RAMP) LiveRamp Holdings, Inc. specializes in data connectivity and analytics, helping businesses unify customer data for personalized marketing strategies. Its platform enables secure data sharing and drives... Read More

  • Services, Renewable, Batteries, Midstream

    Ranger Energy Services, Inc. (RNGR) Ranger Energy Services, Inc. provides well service solutions to the oil and gas industry. The company specializes in high-spec rigs, well maintenance, and completion services,... Read More

  • Analytics, Manufacturing, Appliances, Energy

    ExlService Holdings, Inc. (EXLS) ExlService Holdings, Inc. is a leading provider of data analytics and digital operations solutions. The company helps businesses enhance decision-making, streamline operations, and achieve transformative growth... Read More

  • Wellness, Energy, Construction, Exploration

    LifeVantage Corporation (LFVN) LifeVantage Corporation is a wellness company focusing on nutrigenomics to improve health and longevity. It offers science-backed dietary supplements and skincare products aimed at optimizing health and... Read More

  • Housing, Biotech, Technology, E-commerce

    Fannie Mae (FNMA) Fannie Mae provides liquidity and stability to the U.S. housing market by purchasing mortgages from lenders, enabling them to offer more loans. The company plays a critical... Read More

  • Aviation, Medical, Biotech, Biopharmaceutical

    FTAI Aviation Ltd. (FTAI) FTAI Aviation Ltd. specializes in acquiring, leasing, and managing aviation assets, including aircraft and engines. The company provides innovative solutions to airlines and operators, optimizing performance... Read More



Top 3 Stocks in Leading Sectors
  • 3 Technology Stocks To Buy Now

    BTC Digital Ltd. (BTCT) BTC Digital Ltd. is engaged in cryptocurrency mining and blockchain technology development. The company leverages advanced infrastructure to produce digital assets and support the growth of... Read More

  • 3 Distribution Stocks To Buy Now

    DNOW Inc. (DNOW) DNOW Inc. is a leading distributor of energy and industrial products, offering supply chain solutions and services. Serving oil, gas, and industrial sectors, the company ensures operational... Read More

  • 3 Energy Stocks To Buy Now

    EQT Corporation (EQT) EQT Corporation is a leading natural gas producer, operating in the Appalachian Basin. The company leverages advanced technologies to optimize energy production and deliver sustainable solutions to... Read More

  • 3 Consumer Stocks To Buy Now

    Playa Hotels & Resorts N.V. (PLYA) Playa Hotels & Resorts N.V. owns and operates all-inclusive beachfront resorts in prime locations across the Caribbean and Mexico. The company offers luxurious accommodations,... Read More

  • 3 Aviation Stocks To Buy Now

    Kratos Defense & Security Solutions, Inc. (KTOS) Kratos Defense & Security Solutions, Inc. specializes in developing and deploying advanced defense technologies, including unmanned systems, satellite communications, and cybersecurity solutions. The... Read More

  • 3 Apparel Stocks To Buy Now

    V.F. Corporation (VFC) V.F. Corporation is a global leader in branded lifestyle apparel, footwear, and accessories. With a diverse portfolio of iconic brands like Vans, The North Face, and Timberland,... Read More

  • 3 Defense Stocks To Buy Now

    FTAI Aviation Ltd. (FTAI) FTAI Aviation Ltd. focuses on acquiring, leasing, and managing aviation-related assets, such as aircraft and engines. The company provides tailored solutions to airlines and operators, ensuring... Read More

  • 3 Energy Stocks To Buy Now

    Antero Resources Corporation (AR) Antero Resources Corporation is a leading natural gas and liquids exploration and production company. Operating primarily in the Appalachian Basin, the company focuses on responsible energy... Read More