5 Semiconductor Stocks Charging Gurus' Portfolios

These chip manufacturers are popular among investors as of the 1st quarter

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Jul 14, 2022
Summary
  • Taiwan Semiconductor’s record profit alleviated fears about demand.
  • Gurus were buying shares of Intel, Texas Instruments, Analog Devices, Qualcomm and Taiwan Semiconductor during the first quarter.
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Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) posted record profit for the second quarter on Thursday, assuaging industry-wide concerns over weak demand due to high inflation and a surplus supply of semiconductors on the market.

The Taiwanese company, which is the world’s largest chipmaker, posted revenue of 534.14 New Taiwan dollars ($18.16 billion), which grew 43.5% from the prior-year quarter and beat Refinitiv analysts’ expectations of NT$524.04 billion. Similarly, net income increased 76.4% year over year to NT$237.03 billion and was ahead of analysts’ estimates.

While revenue is projected to be strong in the third quarter as well, CEO C.C. Wei did caution that a portion of Taiwan Semiconductor’s capital expenditures would be “pushed out to 2023,” citing “greater challenges in the supply chains” that are extending delivery times for equipment.

Semiconductor stocks overall have taken a beating so far this year as investors worried over supply chain disruptions, the Russia-Ukraine war and rising material costs, among other factors. Additionally, U.S. chipmaker Micron Technology Inc. (MU, Financial) warned of softening demand for consumer products last month.

Regardless, gurus appear to still be optimistic about the strength of the semiconductor industry according to GuruFocus Hot Picks, a Premium feature based on quarterly 13F filings. The chip companies most-bought by gurus during the first quarter of 2022 included Intel Corp. (INTC, Financial), Texas Instruments Inc. (TXN, Financial), Analog Devices Inc. (ADI, Financial), Qualcomm Inc. (QCOM, Financial) and Taiwan Semiconductor.

Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

Intel

Held by 25 gurus with a combined equity portfolio weight of 61.63%, 13 buys and 11 sells were recorded for Intel (INTC, Financial) in the first quarter.

The Santa Clara, California-based semiconductor chip manufacturer has a $150.23 billion market cap; its shares were trading around $36.70 on Thursday with a price-earnings ratio of 6.10, a price-book ratio of 1.46 and a price-sales ratio of 1.93.

The GF Value Line suggests the stock is significantly undervalued currently based on historical ratios, past financial performance and future earnings projections.

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GuruFocus rated Intel’s financial strength 7 out of 10 as it is being supported by a comfortable level of interest coverage as well as a high Altman Z-Score of 3.03, indicating that it is in good standing. The return on invested capital also overshadows the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability scored a 9 out of 10 rating as a result of operating margin expansion, strong returns on equity, assets and capital that outperform a majority of competitors and a moderate Piotroski F-Score of 6 out of 9, indicating conditions are typical for a stable company. Despite recording a slowdown in revenue per share growth, Intel has a predictability rank of two out of five stars. According to GuruFocus research, companies with this rank return an average of 6% annually over a 10-year period.

Of the gurus invested in Intel, PRIMECAP Management (Trades, Portfolio) has the largest stake with 1.06% of its outstanding shares. Chris Davis (Trades, Portfolio), Seth Klarman (Trades, Portfolio), Al Gore (Trades, Portfolio), the Parnassus Endeavor Fund (Trades, Portfolio), Michael Price (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Tweedy Browne (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio) also have significant positions in the stock.

Texas Instruments

Recording 11 buys and 10 sells for the first quarter, 22 gurus are invested in Texas Instruments (TXN, Financial). The combined weight in their equity portfolios is 18.85%.

The semiconductor and integrated circuits manufacturer, which is headquartered in Dallas, has a market cap of $142.16 billion; its shares were trading around $154.65 on Thursday with a price-earnings ratio of 17.63, a price-book ratio of 10.14 and a price-sales ratio of 7.57.

According to the GF Value Line, the stock is modestly undervalued currently.

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Texas Instruments’ financial strength was rated 8 out of 10 by GuruFocus on the back of adequate interest coverage and a robust Altman Z-Score of 12.75. The ROIC also eclipses the WACC, so value is being created.

The company’s profitability fared even better with a 10 out of 10 rating, driven by an expanding operating margin and returns that top a majority of its industry peers. Texas Instruments also has a high Piotroski F-Score of 8, indicating conditions are healthy. Consistent earnings and revenue growth contributed to a four-star predictability rank. GuruFocus data shows companies with this rank return, on average, 9.8% annually.

With a 1.92% stake, PRIMECAP is Texas Instruments’ largest guru shareholder. Other gurus invested in the stock include First Eagle Investment (Trades, Portfolio), Davis, Diamond Hill Capital (Trades, Portfolio), Grantham and the T Rowe Price Equity Income Fund (Trades, Portfolio).

Analog Devices

Analog Devices (ADI, Financial), which recorded 10 buys and nine sells for the first quarter, is held by 18 gurus with a combined equity portfolio weight of 18.83%.

The Norwood, Massachusetts-based semiconductor company, which specializes in data conversion, signal processing and power management technology, has a $77.84 billion market cap; its shares were trading around $149.60 on Thursday with a price-earnings ratio of 42.41, a price-book ratio of 2.09 and a price-sales ratio of 7.39.

Based on the GF Value Line, the stock appears to be modestly undervalued currently.

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GuruFocus rated Analog’s financial strength 7 out of 10. In addition to sufficient interest coverage, the Altman Z-Score of 3.98 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The WACC exceeds the ROIC, however, meaning the company is struggling to create value.

The company’s profitability fared better, scoring a 9 out of 10 rating despite having a declining operating margin. Returns are also underperforming versus competitors. Analog is supported by a high Piotroski F-Score of 7, though, and steady earnings and revenue growth contributed to a 2.5-star predictability rank. GuruFocus says companies with this rank return an annual average of 7.3%.

PRIMECAP is the company’s largest guru shareholder with 0.83% of its outstanding shares. Analog Devices is also being held by First Eagle, Gore, First Pacific Advisors (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Steven Romick (Trades, Portfolio), Steven Cohen (Trades, Portfolio) and Tom Gayner (Trades, Portfolio), among others.

Qualcomm

With the number of buys and sells both equaling 10 for the quarter, 24 gurus have positions in Qualcomm (QCOM, Financial). They have a combined equity portfolio weight of 20.28% in the stock.

The company headquartered in San Diego, which provides semiconductors, software and services related to wireless technology, has a market cap of $153.29 billion; its shares were trading around $137.76 on Thursday with a price-earnings ratio of 14.01, a price-book ratio of 11.52 and a price-sales ratio of 3.97.

The GF Value Line suggests the stock is modestly undervalued currently.

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Qualcomm’s financial strength was rated 7 out of 10 by GuruFocus, boosted by a comfortable level of interest coverage and a robust Altman Z-Score of 5.46. The ROIC also surpasses the WACC, so value creation is occurring.

The company’s profitability scored a 9 out of 10 rating on the back of operating margin expansion and returns that top a majority of industry peers. Qualcomm also has a moderate Piotroski F-Score of 6, while consistent earnings and revenue growth helped it achieve a two-star predictability rank.

Of the gurus invested in Qualcomm, PRIMECAP once again has the largest stake with 0.61% of its outstanding shares. The T. Rowe Price Equity Income Fund, Jim Simons (Trades, Portfolio)’ Renaissance Technologies, Barrow, Hanley, Mewhinney & Strauss and Mairs and Power (Trades, Portfolio), among others, also have large positions.

Taiwan Semiconductor

Held by 19 gurus with a combined equity portfolio weight of 36.35%, Taiwan Semiconductor (TSM, Financial) saw nine buys and 11 sells in the first quarter.

The Taiwanese manufacturer of semiconductor chips has a $428.19 billion market cap; its shares were trading around $82.49 on Thursday with a price-earnings ratio of 18.71, a price-book ratio of 5.36 and a price-sales ratio of 7.23.

According to the GF Value Line, the stock is modestly undervalued currently.

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GuruFocus rated Taiwan Semiconductor’s financial strength 8 out of 10. Although the company has issued new long-term debt over the past three years, it is manageable due to an adequate level of interest coverage. The robust Altman Z-Score of 6.41 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC is also higher than the WACC, so value is being created.

The company’s profitability scored a 10 out of 10 rating, driven by an expanding operating margin, strong returns that top a majority of competitors and a moderate Piotroski F-Score of 5. Taiwan Semiconductor’s steady revenue per share growth contributed to a four-star predictability rank.

With a 0.51% stake, Fisher is Taiwan Semiconductor’s largest guru shareholder. Other notable guru investors include Frank Sands (Trades, Portfolio), First Eagle, Steve Mandel (Trades, Portfolio), Baillie Gifford (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio), Ron Baron (Trades, Portfolio), Sarah Ketterer (Trades, Portfolio) and Grantham.

Additional picks

Other popular semiconductor companies that were bought by gurus during the quarter included Skyworks Solutions Inc. (SWKS, Financial), Advanced Micro Devices Inc. (AMD, Financial), Microchip Technology Inc. (MCHP, Financial), Micron Technology and Nvidia Corp. (NVDA, Financial).

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure