Taiwan Semiconductor and Cars.com have been highlighted as Zacks Bull and Bear of the Day
Taiwan Semiconductor and Cars.com are part of Zacks Bull and Bear of the Day article.
Taiwan Semiconductor and Cars.com have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – September 2, 2022 – Zacks Equity Research shares Taiwan Semiconductor TSM as the Bull of the Day and Cars.com CARS asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on BCB Bancorp BCBP, Sonoco SON and Otter Tail OTTR.
Here is a synopsis of all five stocks:
Bull of the Day:
Taiwan Semiconductor is a central player in the manufacture of chips for companies like Apple, NVIDIA, and Marvell.
My colleague Derek Lewis profiled TSM last month and highlighted the company's stunning doubling of revenue in less than 3 years.
This year's topline will ramp a projected 37% to nearly $78 billion, while profits are expected to top $6.30 for 53% growth.
In 2021, Apple was the largest customer of the Taiwanese semiconductor foundry, aka TSMC, contributing a quarter of the company's revenues.
Why TSM Services Are in High Demand
TSM is known as a "fab" or "foundry" for chip making. They take the designs of major semiconductor companies and execute their precise -- and top-secret proprietary -- manufacturing parameters.
And this precision and protected privacy has accelerated to new levels in the past few years.
Or maybe I should say it has "shrunk" to new levels.
Because Moore's Law about chips doubling in power as they shrink in half every 18 months or so has been reaccelerated after leveling off in the past decade.
This means that chips have entered what I call The Nanosphere.
A nanometer is one-billionth of a meter. And chip micro-circuitry has gone under 10 nanometers in the past few years.
That's why smartphones can do more even as they shrink.
And why NVIDIA can cram 50 billion transistors into the space of a shoebox for their advanced GPU (graphics processiing unit) cards that stack together for artificial intelligence engines in the DGX system.
This year, Taiwan Semi is helping major chip designers go to 5 nanometers (nm) and even 3nms!
To illustrate the microscopic scale of going sub-10nm, imagine how big the coronavirus might be.
Fact: the coronavirus is around 50 nanometers!
And TSM is the premier foundry for going sub-10nm.
Their only real competition is Samsung.
What if NVDA Stumbles?
Since NVIDIA might be TSM's third or second biggest customer, investors might be concerned about this recent news...
NVDA shares plunged 6.6% in Wednesday's extended trading session after it revealed that the U.S. government told it to stop exporting top artificial intelligence (AI) chips to China and Russia.
In a filing with the Securities and Exchange Commission, NVIDIA disclosed that the U.S. government informed it on Aug 26 about imposing a new licensing requirement, effective immediately, for its A100, A100X and forthcoming H100 integrated circuit sales in China and Russia.
The government has also banned NVIDIA from exporting DGX or any other systems that incorporate A100 or H100 integrated circuits.
The new licensing requirements will also be implied on any future chip designs developed by NVIDIA that have a threshold greater than or equivalent to A100. Additionally, any systems developed in the future incorporating the aforementioned types and thresholds will also fall under export restrictions.
With the new licensing requirements, the U.S. government intends to "address the risk that the covered products may be used in, or diverted to, a 'military end use' or 'military end user' in China and Russia," per NVDA in the SEC filing.
Export Restrictions to Hurt NVIDIA Sales
NVIDIA's A100 and H100 are its highest-performance chips used in data centers for AI, data analytics and computing applications. Though the company does not sell products to customers in Russia, the new licensing requirements are going to significantly hurt its data center chip sales in China.
The newly imposed restrictions are likely to impact the company's ability to support the existing customers of A100 as well as complete the development of H100 timely. This could also require NVIDIA to transition some of its operations outside China.
The restrictions are expected to hamper NVIDIA's business in China from where the company is expecting to generate $400 million in revenues from the sale of the aforementioned chips in the third quarter of fiscal 2023. The company warned that it may lose revenues if Chinese firms decide not to buy alternative NVIDIA products.
The latest restriction is a new blow to NVIDIA, which is already being hurt by the weakening demand for its chips used in gaming products. Last week, the company reported revenues of $6.7 billion for the second quarter of fiscal 2023, way lower than its May 2022 forecast of $8.10 billion (+/-2%), due to weaker sales across its Gaming and Data Center business segments.
NVIDIA's Gaming segment revenues plunged 33% year over year due to a lower sell-in of Gaming products, reflecting reduced channel partner sales due to macroeconomic headwinds. Although Data Center revenues jumped 61% year over year, the company stated that sales were below expectations due to ongoing supply-chain disruptions and lower sales to China's hyperscale customers, who are affected by economic conditions.
Considering the current business environment, the company issued dim revenue guidance for the third quarter, wherein it expects to generate $5.9 billion (+/- 2%) in sales, approximately 17% lower than the year-ago quarter's revenues. Looking at the latest U.S. government's restriction on chip sales to China, the company is highly probable to report third-quarter revenues way lower than its August 2022 guidance.
Bottom line on TSM: Despite NVDA's downfall, with the SOX index down 35% since its highs and TSM down 43%, it seems the best value in chips right now trading near 13X EPS. Buy some TSM.
Bear of the Day:
Cars.com may be a casualty of inflation as auto prices surge above MSRP by 10% in many areas of the country.
The small-cap operator of an online automotive platform offers new and used vehicle listings, expert and consumer reviews, and research tools to millions of consumers each month.
The company also engages in the sale of display advertising to national advertisers.
Cars.com Inc. is based in Chicago.
CARS delivered quarterly earnings of $0.08 per share, beating the Zacks Consensus Estimate of $0.05 per share. This compares to earnings of $0.08 per share a year ago. These figures are adjusted for non-recurring items.
This quarterly report represents an earnings surprise of 60%. A quarter ago, it was expected that this online automotive marketplace would post earnings of $0.03 per share when it actually produced earnings of $0.06, delivering a surprise of 100%.
Over the last four quarters, the company has surpassed consensus EPS estimates two times.
Cars.com, which belongs to the Zacks Internet - Commerce industry, posted revenues of $162.87 million for the quarter ended June 2022, surpassing the Zacks Consensus Estimate by 0.61%. This compares to year-ago revenues of $155.53 million. The company has topped consensus revenue estimates four times over the last four quarters.
The reason that CARS is in the cellar of the Zacks Rank is that analysts continue to lower EPS estimates.
This may be a function of consumers retracting from high prices for autos and doing more competitive shopping.
With over $650 million in sales projected this year, CARS seems like a diamond in the junk yard.
But let's wait before grabbing the keys until the estimates stop going down and start going back up.
The Zacks Rank will let you know.
Additional content:
3 Top Ultra-Safe Stocks to Buy for a Notorious September
Fed Chair Jerome Powell's plans to keep increasing interest rates did little to boost investors' sentiment, with stocks closing broadly lower in August. To make matters worse, the stock market is now bracing for a historically unpleasant September.
However, investors shouldn't shun equities completely. Instead, they should look out for low-risk stocks that can generate better returns in the near future. Notable among them are BCB Bancorp, Sonoco and Otter Tail.
Summer Market Bounce Back in Doubt
U.S. stocks did witness the sharpest first-half decline in more than 50 years. However, the major indexes started to gain momentum in July and picked up steam during the first half of August. This is because market pundits were expecting a limited increase in interest rates as inflation began to show signs of easing.
Regrettably, Powell's recent hawkish speech sparked a fresh sell-off in stocks. In his Jackson Hole speech, Powell reaffirmed that the central bank remains committed to taming inflation, and will continue to hike interest rates despite concerns about a looming recession. In reality, a rate hike doesn't bode well for the stock market as it raises borrowing costs, curtails consumer spending, and impacts economic growth.
Undoubtedly, stocks extended their losing streak for the fourth-straight trading session on Aug 31, following Fed Chair's speech. In fact, for the month of August, the Dow, the S&P 500, and the Nasdaq posted a drop of 3.9%, 4.2%, and 4.6%, respectively, according to Dow Jones Market Data, citing a MarketWatch article.
September – An Ugly Month for Stocks
With the stock market ending August in the red, it is now headed for the historically worst month of the year. Typically, the three major indexes have given the poorest performance in September. To put things into perspective, the S&P 500 declined an average 1% in September from 1928 to 2021. Likewise, when the S&P 500 declined from the beginning of the year through the end of August, as it is this year, the broader index registered an average drop of 3.4% in September, per analysts at Bespoke Investment Group, quoting another MarketWatch article.
So, why is September a weak month for the stock market? It is mostly presumed that investors after returning from their summer vacations want to lock in gains by selling some of their stock holdings for the year in September. At the same time, it is believed that investors sell their stock holdings in order to pay for back-to-school items.
How to Play the Stock Market
With the stock market now historically entering its worst phase of the year after witnessing a pullback in August, it is prudent for investors to place bets on stocks that provide risk-adjusted returns. Thus, it's imperative to invest in low-beta stocks. These stocks are comparatively less volatile than the markets they trade in. Low beta, by the way, ranges from 0 to 1.
To top it off, these stocks are high dividend payers. Thus, they not only provide a steady flow of income but also are immune to market vagaries due to their healthy financial structure and, of course, a better-quality business. Further, they flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks Rank #1 stocks here.
BCB Bancorp operates as the holding company for BCB Community Bank, a state-chartered commercial bank. BCBP has a beta of 0.58. It has a dividend yield of 3.5%. Over the past 5 years, BCBP has increased its dividend once, and its payout ratio presently sits at 29% of earnings. Check BCB Bancorp's dividend history here.
The Zacks Consensus Estimate for its current-year earnings has moved 15.1% north over the past 60 days. BCBP's shares have gained 17.6% year to date. It's expected earnings growth rate for the current year is 34.9%.
Sonoco is a leading provider of consumer packaging, industrial products, protective packaging, and packaging supply-chain services. SON has a beta of 0.73. It has a dividend yield of 3.1%. Over the past 5 years, SON has increased its dividend four times, and its payout ratio presently sits at 36% of earnings. Check Sonoco's dividend history here.
The Zacks Consensus Estimate for its current-year earnings has moved 13.2% north over the past 60 days. Sonoco's shares have gained 10.8% so far this year. It's expected earnings growth rate for the current year is 78.3%.
Otter Tail is involved in the production, transmission, distribution and sale of electric energy. OTTR has a beta of 0.46. It has a dividend yield of 2.2%. Over the past 5 years, OTTR has increased its dividend five times, and its payout ratio presently sits at 26% of earnings. Check Otter Tail's dividend history here.
The Zacks Consensus Estimate for its current-year earnings has moved 31.8% north over the past 60 days. Otter Tail's shares have gained 6% year to date. It's expected earnings growth rate for the current year is 67.4%.
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Sonoco Products Company (SON) : Free Stock Analysis Report
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Cars.com Inc. (CARS) : Free Stock Analysis Report
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