3SOF

Reading the «Strategic Orientation» Board you'll know that I'm bullish on the general market, particularly on the Nasdaq, specifically on semiconductor stocks.

I have still 20% cash in the 3 Stocks on Fire Portfolio, and I don't need that now. What I need is to be full invested in stocks for the upcoming year end rally.

Since I want to buy semiconductor stocks (I just have CNXT on that group now, which by the way is the best performing stock on the 3 SOF Portfolio), I thought it would be a good idea to buy the largest in the world by revenue terms, which is Taiwan Semiconductor (TSM).

Also, looking at their numbers, the stock seems undervalued in comparison to its peers.

Technically the chart is getting bullish too. I will buy TSM for the 3 Stocks on Fire Portfolio at today's open, 6.66% of total capital as always.

Hi David,

Since you are bullish on the semiconductors, what is your opinion of buying the tracking stock of the index or its options?

Just a thought.  It would be less lucrative that selecting the "right" stock(s) but maybe a bit safer.

What do you think?

Go easy, I am just a newbie.

Quote from: wisebuys on November 10, 2005, 07:26:15 AM
Hi David,

Since you are bullish on the semiconductors, what is your opinion of buying the tracking stock of the index or its options?

Just a thought.  It would be less lucrative that selecting the "right" stock(s) but maybe a bit safer.

What do you think?

Go easy, I am just a newbie.

I like it too, but since TSM is cheaper (possibly because it is very big) in fundamental terms, I think it will outperform. Options is a dangerous game, nobody wins long term, just the people who sell options.

To win long term one needs to take the right steps now, because now is the only time you can act, not in the past, and not in the future. Almost nobody knows enough money management and has the discipline to play options in a way that won't lead to bankruptcy over the long term. Those who sell options win long term. Those who buy them lose all their money.

I'm sorry if I was too tough, as you say you're just a newbie. When I was a newbie I used to play options too, now that I am a grown up I know that's a losers game. If you make 50% a year trading stocks you will be a very rich man in the future. Anyway, good luck if you opt for options

TSM tried to fall on profit taking but later in the session bargain hunters kicked in and push it back up. Everything is fine with TSM, the semiconductor index is rising to new highs and TSM will hopefully outperform, we'll see about that.

I'll continue holding TSM.

There's a service outthere that deeply analyzes semiconductor shares on a fundamental point of view. I'll subscribe it today for me to use here on 3 Stocks on Fire. I'll share the newsletter's analysis with our members.

Today they have a piece on TSM:

Next Inning Technology Research Examines Contract Fabricators: TSMC, UMC, Chartered, and SMIC

The stock opened too high on Friday and quickly it came down to close the opening gap. It's a normal behavior. Probably today TSM will recover some ground, since the gap is closed now and there's some support, prior resistance, in this area.

I'll just hold, the SOX isn't at new highs yet, but I believe it will before year's end.

Due to computer glitches I'm really short on time for these updates today, I'll just leave the chart for TSM and say that I will continue holding the stock.

TSM is a large cap and it hasn't so much volatility as other stocks held on the 3 Stocks on Fire Portfolio. The stock even rose yesterday.

This is not a specific pick, it is a general market pick. What I mean by this is that I believe TSM will rise with the general market and that's the reason why I will continue holding it.

Still no trading plan, just HOLD. I need to study this company's technicals and fundamentals some more. But I don't see much risk, this is a large cap stock.

TSM closed at a new short term high with the Nasdaq, which is positive. I'll wait for some more upside before I define a trading plan, I just wish and expect the stock to make a bullish breakout of the triangular pattern it's been in.

Today I'll design a trading plan for TSM, it's an easy one. The stock has been trading within a triangular pattern. I'm very bullish on the semiconductor group and I believe TSM, being one of the largest companies in its field, will rise accordingly and even outperform its peers.

Given this, my expectation is for the stock to breakout of the triangular pattern on the chart below. That would give me a technical target of something like $14.88.

So I would take profits there.

As downside protection I think the more logical solution is to use the ascending trendline. For today that ascending trendline stands at $7.73.

I don't have time now to draw the technical target on TSM's chart now (new computer), but you can see it on the last update.

The stock is getting near the long term resistance line, but I believe it will break that on the upside, if not today or this week, until the end of the year it seems like a sure thing, as the semiconductor sector sees the almost traditional end of the year rally.

The trading plan for today is just hold.

I jumped in today at 9.14, its doing well so far at 9.38

I have been to TSMC about 20 times, it is a very impressive company.  Their foundry business model was very ahead of its time, and they have some of the top minds in the semiconductor industry there.  Dr. Burn Lin used to work at IBM and is known by many as the father of modern lithography, and he is a VP at TSMC now.  TSMC suffered a bit of brain drain a few years ago as SMIC started up in Shanghai and stole some employees, but TSMC is still the number one semi foundry in the world, hands down.  I think they stemmed the exodus to SMIC and I even saw a number of employees coming back to TSMC from Shanghai.

I worked in semi for over 8 years, and TSMC always gave us some of the toughest and most advanced samples I had every seen.  Their process now probably rivals Intel IMO.  They definitely stand to benefit from a bullish semiconductor market!

This thread seems sort of lonely, hope others will join in 

 

Thanks a lot for your insight tokyopua, great info    (applaud)

Yes, I hope more people buy and comment TSM, because the stock yesterday made a very significant bullish breakout. Also, it is a large cap, and the market is favoring large caps at this moment.

The stock broke out of a long lasting descending trendline, as you can check on the chart below.

No detailed trading plan, just hold.

Hi David,

Perhaps this article below from today will further spur interest in the stock. 

It talks about the potential for both AMD and Intel to outsource business to TSMC!     Quite an eye opener!  Granted it hasnt happened yet, but as I said TSMC has the capability to produce some of the smallest circuit features on the planet so they are the logical choice for the big companies in the race to keep up with Moore's Law.  UMC is another possiblity but their process is not quite as advanced as TSM and I believe they have a problem in the capability to produce advanced photomasks (the patterened glass templates for all circuit patterns) as they have no captive (internal) photomask shop like TSM does (UMC is dependent on DuPont to produce photomasks, and Dupont was recently bought by Toppan in Japan). 

And even without that "speculative" aspect of Intel and AMD business, the article is very bullish based on fundamentals such as low P/E, strong Q4 guidance, free cash flow, etc.

----------------------------------------------------------------------------------------


By Monica Rivituso
   Of SMARTMONEY.COM


  (This article was originally published Tuesday)


  EVERY NOW AND AGAIN, I come across a stock that's a real head-scratcher.
Maybe a company has a business model that borders on the lunatic, or perhaps it
hasn't minted a penny in profits but enjoys darling status among the investing
set. Frankly, neither scenario holds much interest for me. But then there are
those companies that are well positioned, financially solid and have pitifully
undervalued stock prices. In this arguably more intriguing bunch I'd include
Taiwan Semiconductor Manufacturing (TSM).

  True, the world's largest semiconductor foundry has been subject to its share
of investor angst of late. The year's stock chart rivals something you'd find
at Six Flags Great Adventure. Between July and October, shares plunged nearly
19%, only to recover 18% in the past month. The stock now is sitting on an 8%
gain for the year - pretty impressive considering the Nasdaq's paltry 3%
increase.

  Despite that run-up, Taiwan Semi shares trade at about 13 times next year's
earnings estimates, compared with the price/earnings multiple of about 15 for
the Standard & Poor's 500. The S&P, by the way, is projected to grow at a
slug's pace relative to Taiwan Semi. Taking long-term growth expectations into
account, the stock touts a price/earnings growth, or PEG, ratio of 0.65 (that,
by the way, is not a typo), compared with 1.97 for the industry and an even
richer S&P PEG.

  Taiwan Semi shares are cheap, and I think there's an opportunity for
investors here. That's about as clear as I can get.

  First, a bit about what Taiwan Semi does. If you're a chip maker - even one
with your own fabrication plants -  chances are Taiwan Semi cranks out some of
your product. That's just how this business is. Sometimes a chip maker needs
some capacity on the fly, doesn't want to devote capacity to something that
might be more of a commodity item or, frankly, can't make a certain component.
Enter Taiwan Semi, which manufactures chips and components for just about every
silicon-packed product you can think of. And we're not talking about some
renegade contract chip maker that only deals with fringe names: Taiwan Semi
counts Nvidia (NVDA), Texas Instruments (TXN) and Broadcom (BRCM) among its
customers.

  Why is this stock so cheap? Investors, by turns, have been skittish that
first-quarter business would show a massive seasonal slowdown. Holiday sales
concerns are not new at this point. But then Taiwan Semi delivered an
impressive third quarter and issued glowing guidance for the fourth quarter,
including stronger-than-expected margins. And the company's October sales
report, released Nov. 9, showed a 4% sales increase over September and a 14%
increase from a year earlier - not exactly stuff that should make folks
nervous. "Management expects to see customer demand continue into the fourth
quarter and has a positive outlook for the remainder of 2005 and beginning of
2006," said Robert Maire, an analyst at Needham, in a recent note to clients.
(Maire doesn't own shares of Taiwan Semi; Needham doesn't have an
investment-banking relationship with the firm.)

  Then there's the cash flow. As of Sept. 30, Taiwan Semi generated about $3.4
billion in cash from operating activities in the past nine months. The
company's product mix is one of the reasons it's able to maintain such strong
free cash flow, explains Shekhar Pramanick, an analyst at Boston-based
financial-services firm Moors & Cabot Capital Markets. Because Taiwan Semi
makes cutting-edge high-end chips, lower-end commodities and everything in
between, it can keep its manufacturing plants humming at full levels longer
than a company that makes fewer types of chips. Steady cash generation is a
nice quality to be sure, and one of the reasons Pramanick favors the stock.

  "We're very bullish on Taiwan Semiconductor primarily because it's a company
that has one of the highest free-cash-flow profitability in the semiconductor
industry," he says. (Pramanick doesn't own shares of Taiwan Semi; Moors & Cabot
doesn't have an investment-banking relationship with the company.)

Pramanick cites other reasons why the first quarter won't be as tough as some
think. Advanced Micro Devices (AMD) is going to start outsourcing its
memory-chip-making operations, and part of that business will likely go to
Taiwan Semi. Also, Intel (INTC), which has struggled with its chipsets, the
groups of chips that are sold together to perform a single function, has
outsourced the manufacturing to ATI Technologies (ATYT) and other Taiwanese
manufacturers. Some of this Intel business, says Pramanick, will in turn likely
go to Taiwan Semi.

  What's more, chip inventories are at seriously lean levels now, according to
Pramanick. That means if the holiday sales season is decent, companies will
need to restock their shelves with electronic goodies, which will require - you
guessed it - more chips.

  Frankly, nothing would make Taiwan Semi investors happier.

  For more information and analysis of companies and mutual funds, visit
SmartMoney.com at http://www.smartmoney.com/


  (END) Dow Jones Newswires

  11-23-05 0734ET

  Copyright (c) 2005 Dow Jones & Company, Inc.

07:34 112305

This just in from Jim Cramer at 6:35 PM eastern on Cramer's Mad Money when asked about TSM

"It ROCKS.  It rocks big time!" 

He said he had thought about doing a piece on it this week and didnt but says he should have.  Which is suprising to me, I thought he was going to lambast the caller for "coming to me with a Taiwanese company when you can buy US companies like AMD and Intel (which I own for the charitable portfolio and ActionAlerts.com yada yada".

Instead he was  ullish!!!

Go TSM!