The stock market has been suffering an aggressive sell-off over the past few months due to escalating fears around rising inflation, rising interest rates, and the possibility of an economic slowdown. Last week, U.S. stocks suffered a sharp decline on the release of hot inflation data that showed an increase of 8.3% in April’s consumer price index. This raised further concerns about the Fed’s aggressive policy tightening, and the Nasdaq Composite declined nearly 30% from its record high on Wednesday.
Since the beginning of 2022, the major U.S. indices have been pushed into negative territory. Over the past month, the S&P 500 Index has declined 8.7%, and Dow Jones Industrial Average plunged 6.4%. However, the market sell-offs have created an attractive opportunity to buy quality mega-cap stocks. Given their broader market reach, pricing power, and strong financials, we think it could be an opportune time to invest in fundamentally sound mega-cap stocks.
Thus, mega-cap stocks Taiwan Semiconductor Manufacturing Company Limited (TSM) and LVMH Moët Hennessy - Louis Vuitton, Société Européenne (LVMUY), which are trading at discounts to their peers, could be solid bets now.
Click here to checkout our Semiconductor Industry Report for 2022
Taiwan Semiconductor Manufacturing Company Limited (TSM)
TSM manufactures, markets, and sells integrated circuits and semiconductors in North America, Europe, Japan, China, and South Korea. It is headquartered in HsinChu, Taiwan. In addition, the company provides account management, customer service, and engineering services. It serves customers in the computer, communications, and industrial segments. TSM has a market capitalization of $468.85 billion.
In November, TSM announced plans to set up a new chip factory in Taiwan and a specialty technology fab in Kumamoto, Japan. The new chip fabrication plant will produce advanced 7-nanometer and 28-nanometer semiconductors. This is expected to expand TSM’s manufacturing capacity and boost revenues.
In its fiscal 2022 first quarter, ended March 31, 2022, TSM's net sales increased 35.5% year-over-year to NT$491.08 billion ($16.48 billion), while its gross profit grew 43.9% year-over-year to NT$273.20 billion ($9.17 billion). Its income from operations rose 48.7% year-over-year to NT$223.79 billion ($7.51 billion). Its income before taxes grew 46.3% year-over-year to NT$226.83 billion ($7.61 billion). And the company’s net income and EPS came in at NT$202.73 billion ($6.80 billion) and NT$7.82, respectively, registering increases of 45.1% and 45.1% from the prior-year period.
Analysts expect TSM’s revenue for its fiscal 2022 second quarter, ending June 30, 2022, to come in at $17.37 billion, indicating a 30.4% increase year-over-year. It has surpassed the consensus revenue estimates in three of the trailing four quarters. The $1.46 consensus EPS estimate for the current quarter represents a 57.2% rise from the same period last year. Also, the company has topped the consensus EPS estimates in each of the trailing four quarters.
The stock has decreased 29.8% in price year-to-date and 17.7% over the past year and closed yesterday's trading session at $90.41.
TSM’s POWR Ratings reflect this promising outlook. It has an overall grade of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
TSM has an A grade for Quality and a B for Growth, Momentum, and Sentiment. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #24 of 95 stocks. To see additional POWR Ratings (Value and Stability) for TSM, click here.
LVMH Moët Hennessy - Louis Vuitton, Société Européenne (LVMUY)
Headquartered in Paris, France, LVMUY operates as a luxury goods company worldwide. The company provides champagnes, wines, and spirits. In addition, it provides fashion and leather products under the Celine, Berluti, Christian Dior, FENDI, Givenchy, Loewe, Louis Vuitton, Moynat, Marc Jacobs, and RIMOWA brands. Further, it offers perfumes and cosmetics, watches, jewelry, and custom-designed yachts. It also provides daily newspapers. It has a market capitalization of $302.33 billion.
Today, under its share buyback program, LVMUY has entrusted an investment services provider with a mandate for the acquisition of its shares, for a maximum amount of €1 billion ($1.04 billion) and 10 million shares at most, over a period beginning on May 17 and ending on or before November 15 this year. This share buyback program might strengthen the company’s shareholder value.
Last month, LVMUY’s board of directors approved a €10 ($10.41) per share dividend payment for 2021. Considering the €3 ($3.13) paid on December 2, 2021, the remaining balance of €7 ($7.29) was paid on April 28, 2022. This reflects the company’s solid financial position and commitment to delivering the value of its earnings to shareholders.
This February, LVMH Japan and SoftBank Corp. signed a strategic partnership to enhance luxury brands' customer experience and services by leveraging technology. The partnership should accelerate various vital innovations and technologies for LVMH Japan, including VR/5G and LINE-based communication with customers. This is expected to extend its customer reach and profitability by enhancing customer experiences through technology.
LVMUY's revenue increased 19.6% year-over-year to €64.22 billion ($66.90 billion) in its fiscal year 2021, ended Dec. 31, 2022. Its gross margin improved 52.4% year-over-year to €43.86 billion ($45.69 billion). In addition, its profit from recurring operations grew 106.5% from the prior year to €17.15 billion ($17.87 billion). The company’s net profit amounted to €12.70 billion ($13.23 billion), indicating a 156.3% increase from the previous year.
The $18.95 billion consensus revenue estimate for its fiscal year 2022 second quarter, ending June 30, 2022, represents a 9.2% increase from the prior-year period. The company has an impressive revenue surprise history; it has surpassed the consensus revenue estimates in each of the trailing four quarters.
Shares of LVMUY have declined 20.7% in price year-to-date and closed yesterday's trading session at $120.28.
LVMUY's strong fundamentals are reflected in its POWR Ratings. The stock has a B grade for Quality, Stability, and Sentiment. Within the Consumer Goods industry, it is ranked #14 of 61 stocks. To see additional POWR Ratings (Momentum, Value, and Growth) for LVMUY, click here.
Click here to checkout our Semiconductor Industry Report for 2022
TSM shares were trading at $92.76 per share on Tuesday afternoon, up $2.35 (+2.60%). Year-to-date, TSM has declined -22.61%, versus a -14.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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