Along with the new version of the summary page, GuruFocus recently released a new proprietary metric called the GF Score. This ranking system, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021, is based on the following five key aspects:
- Financial Strength
- Profitability
- Growth
- Valuation
- Momentum
The GF Score ranges from 0 to 100, with 100 as the highest rank. The backtesting results found that stocks with a higher GF Score generally generate higher long-term returns than those with lower GF Scores. You can read more about the calculations and reasoning behind the GF Score here.
With the semiconductor shortage at the forefront of many investors’ minds due to the clash between booming demand and supply chain issues, I used the GuruFocus All-in-One Screener, a Premium feature, to screen the market for semiconductor stocks with GF Scores above 90.
According to Precedence Research, the demand for semiconductors is expected to increase at a compound annual growth rate of 6.6% through 2030. Among the stocks with high GF Scores, three names that stand out as leaders in their areas of operation are Applied Materials Inc. (AMAT, Financial), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) and Linde PLC (LIN, Financial).
Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (TSM, Financial) is the world’s largest independent semiconductor producer. It derives most of its profits from smartphone components and memory, though its internet of things products have seen increasing sales in recent years.
Taiwan Semiconductor operates exclusively as a chip foundry, meaning it produces chips for other companies. This focus has allowed it to gain a unique scale advantage over competitors; on its own, it accounts for 54% of the global semiconductor production market.
The company’s GF Score is 96, receiving strong scores for profitability, growth and GF Value and better than average scores for financial strength and momentum.
Applied Materials
Applied Materials (AMAT, Financial) is a leading global materials engineering company headquartered in Santa Clara, California. It provides equipment, services and software that are used in the manufacture of semiconductor chips for electronics, flat panel displays, smartphones and solar products.
This company is a “pick and shovel” play on the semiconductor market, providing essential tools that are used in the production of virtually every new chip and advanced display around the world. Its customers include the likes of Taiwan Semiconductor, Samsung (XKRX:005930, Financial) and Intel (INTC, Financial).
Applied Materials has a GF Score of 97, driven by strong scores for profitability, growth, momentum and financial strength. The one area where it lags somewhat is GF Value; the GF Value chart rates the stock as modestly overvalued.
Linde
Linde (LIN, Financial) is a multinational chemicals and engineering company headquartered in Dublin, Ireland. By market share and revenue, it is the world’s largest industrial gas production company. It mainly produces atmospheric and process gasses.
Gases such as ultra-high-purity nitrogen, oxygen and neon are necessary to produce semiconductors, and Linde is a leading producer of these gases. For example, neon is used for lithography because its wavelength is so short it can create patterns in wafer chips down to 193 nanometers.
Linde’s GF Score is 91. It receives very high scores for growth, momentum and profitability, with middling scores for financial strength and GF Value.
