Ticker Reports for October 16th
Taiwan Semiconductor Stock: Buy Now or Wait for Earnings?
Earnings season is bringing investors the most awaited stock market results, this time not only the banking sector’s status and trends but also the semiconductor and chipmaking niche of the technology sector. Last quarter, investors gathered around the country to watch earnings results from some of the biggest names in the space to decide whether to buy or sell.
That includes stocks like Taiwan Semiconductor Manufacturing Co. (NYSE: TSM), the global leader of chipmaking, with some of the biggest companies out there depending on its success. Then there is investor—and trader—favorite NVIDIA Co. (NASDAQ: NVDA), which is also affected by how Taiwan and other major players perform during their quarters as a gauge of future expectations.
After a recent 16% sell-off from Taiwan Semiconductor’s main competitor outside of Asia, ASML Holdings (NASDAQ: ASML), investors may have new reasons to worry about the future states of affairs in the chipmaking industry, wondering whether they are about to go into a low cycle after more than five years of above-average margins and profitability. If these fears turn out to be true, then Taiwan Semiconductor investors have a choice to make today.
What Markets Expect From Taiwan Semiconductor's Upcoming Earnings
Investors need to look at one key piece of information before Taiwan Semiconductor stock's earnings. The company's investor relations website has a report on monthly revenue, which has reported double-digit growth (on an annual basis) for every month so far into 2024.
However, this is not the end-all-be-all indicator, as many other financial metrics can show the market where the industry might be headed, such as gross margins. For Taiwan Semiconductor, gross margins came in at 53.2% for the quarter, though these margins were a bit higher at 54.1% for the same quarter last year.
A contraction in gross margins, signaling rising production costs or falling pricing power, could mean that the industry is headed into a lower demand (or higher inventory) environment today. If this is true, then ASML's contraction in bookings is only the beginning for the rest of the players in this space.
Despite seeing double-digit revenue growth over the year, Taiwan Semiconductor posted a net decline of 13.4% in operating cash flows, which often act as a proxy for a company's earning power over the measured period. These faltering metrics add pressure to the potential of Taiwan Semiconductor to report a strong quarter this week.
But all hope is not lost for the company, which is still beating expectations. That's why investors need to dig deeper into market expectations and decode a few metrics that are most often overlooked.
Markets are willing to overpay slightly for Taiwan Semiconductor stock compared to peers in the space today, especially regarding a price-to-book (P/B) and price-to-earnings (P/E) ratio. Trading at a 33.5x P/E places Taiwan Semiconductor at a premium to the semiconductor industry's average valuation of 29.5x today.
The same trend extends to Taiwan Semiconductor's P/B valuation of 8.6x today, also above the industry's 7.0x valuation today. Markets typically pay a premium for companies they expect to outperform in the near future, which is especially the case today considering earnings are this week.
Does Wall Street Agree With the Market's Premium Valuation?
Some analysts got ahead of the earnings curb for Taiwan Semiconductor stock’s earnings, particularly those at Susquehanna. As of August 2024, these were the latest set of analysts to express their views on the chipmaker’s price, reiterating a “Positive” rating alongside a $250 a share price target.
These are the outliers, above the consensus price target of $200 a share today. To prove these Susquehanna analysts right, Taiwan Semiconductor stock would have to rally by as much as 32% from where it trades today, not to mention a new all-time high valuation for the company.
Another gauge for investors to consider, which adds to the bullish evidence to support holding this stock through earnings, is the fact that the stock’s short interest has declined by 0.3% over the past month alone. This is part of a larger quarterly decline from $5.6 billion to $4.5 billion in short interest today.
Slowing finances don’t have the strength bears thought they had, a trend investors can confirm by looking at the premiums being paid for Taiwan Semiconductor stock today and the bearish capitulation over the quarter. Bullish factors outweigh the bearish ones, making this a stock to hold through the upcoming earnings announcement.
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Abbott's Growth and Dividends Make It a Smart Portfolio Pick
There are many reasons to own Abbott Laboratories (NYSE: ABT), but they all boil down to one thing: consistent market-beating returns. A study published by Hendrik Bessembinder, a professor of finance at Arizona State University, found that Abbott is the 11th top-returning stock since 1937 and #1 among healthcare names.
The critical takeaways from the report are time and consistency: the top performers produce slower annual growth than flash-in-the-pan growth stories but do it year in and year out, compounding value over the long term. Value is driven by company growth, cash flow, and capital returns, which, in Abbott's case, include dividends and share repurchases. Abbott stock can also help reduce portfolio risk because its low beta is about 0.7x the S&P 500 (NYSEARCA: SPY).
High-Quality Abbott Stock: Corporate Growth That Pays You to Own It
Abbott Laboratories had a solid Q3, reporting 4.9% growth to outpace the consensus forecast despite the impact of lower COVID-related sales and discontinued business. Organically, ongoing business grew by 8.2% due to strength in the medical device segment. Medical Devices grew by 11.7% reported and 13.3% organic due to a double-digit increase in Structural Heart and Heart Failure and the release of continuous glucose monitors, showing the strength of the diversified portfolio.
Regarding the remaining segments, established Pharmaceuticals grew by 2.7% on a reported basis and 7% organically, offset by reported declines in Nutrition and Diagnostics. Nutrition contracted by 0.3% as reported but grew by 3.4% organically, while Diagnostics declined by 1.3% on a reported basis but grew by 1.4% organically.
Margin news is also solid, sustaining the outlook for balance sheet health and capital returns. The company’s operating and net margin widened slightly compared to the previous year, driving earnings leverage. The operating and net operating earnings are up 12.8% and 14.6%, leaving the adjusted fully diluted EPS at $1.21 or up 6%, with margins forecasted to remain stable in Q4.
Abbott’s guidance is favorable in that revenue targets were reaffirmed, and the mid-point for earnings was raised. The company expects full-year earnings in a range centering on $4.67 versus the $4.66 consensus, which should keep the analysts happy and support the uptrend in share prices.
Abbott Laboratories Capital Return Grows Safely, Drives Value for Shareholders
Abbott Laboratories' capital return is safe and reliable, with a 53-year history of sustained annual increases and a low payout ratio below 50%. The balance sheet is a fortress with no red flags, leaving ample cash flow for R&D, reinvestment, acquisitional cash flow, and share repurchases. Repurchase activity isn’t robust but sufficient to offset dilutive forces and reduce the count annually. Highlights from Q3 include a 0.05% YTD share count reduction and a freshly amended repurchase authorization worth $7 billion or about 3.5% of the market cap before the release.
Analysts' support for Abbott is strong. The trend in calendar Q3 is increasing coverage, improving sentiment, and upward price target revisions. The consensus is a Moderate Buy verging on a Strong Buy with a price target of $125, about 10% above the post-release opening price. The freshest revisions lead to the high-end range, another 10% to 15% above the consensus target, and a new all-time high when reached.
Abbott Slips Into a Buying Opportunity
The price action following the release was tepid, with share prices pulling back slightly. However, analysts and institutions support the market well, so the pullback should result in a buying signal soon. The critical support target is near $115 and will likely be tested. If the market can sustain support above that level, a move to fresh highs is likely before the year’s end. If not, Abbott Laboratories' share price may remain range-bound until more is available.
320 hedge funds just sold this stock
320 hedge funds just sold this stock
A strange force has seized control of Wall Street. Hedge funds are already moving their money… and preparing for even stranger days ahead. Over 320 hedge funds have quietly sold THIS famous stock – to prepare for a dramatic market shift
Citigroup Faces Growing Troubles: Could the Industry Be at Risk?
The most critical earnings set for investors to look over and digest this season have just come out, and those are the results of the financial sector, particularly from banking stocks. However, investors need to understand that there are two types of banks to watch over this season: commercial banks and investment banks. The former covers the business cycle, while the latter covers the consumer cycle.
Investors would be surprised to learn that shares of Citigroup Inc. (NYSE: C) are down by over 5% the day after the bank reported its latest quarterly earnings results. The reason for the stock’s decline, however, has little to do with Citigroup's actual revenues and fees and more with an industry metric and regulatory speculations.
This doesn’t clear Citigroup out of trouble; otherwise, bullish traders and investors would have come running to the stock once the discount became apparent enough for everyone to close the gap and bring it back to its reasonably perceived price before the selloff took place. Investors can see the bearish momentum building up further in two simple metrics for Citigroup stock as a potential warning for the rest of the industry.
Citigroup Becomes the Latest Victim of a Worsening Consumer Sector
Credit losses and delinquency rates are on the rise. This trend has been accelerating since a couple of quarters ago, showing investors why consumer discretionary stocks like Nike Inc. (NYSE: NKE) and Lululemon Athletica Inc. (NASDAQ: LULU) both trade significantly below their 52-week high prices.
For Citigroup, this trend came in the form of a $2.7 billion credit loss, which management directly quotes as being accredited to credit losses in their card business. This is not a Citigroup-specific issue but rather an industry-wide issue, considering that peers like Bank of America Co. (NYSE: BAC) have also reported similar deteriorations in their credit card business.
Even corporate banks like Goldman Sachs Group Inc. (NYSE: GS) have decided to stay out of the consumer segment by ditching their consumer products initiative, particularly with Apple Inc. (NASDAQ: AAPL) and their credit card collaborations. Going back to Citigroup, investors can notice the rise in 90-day delinquencies for their cards.
Now at 1.5%, compared to the 1.3% from 12 years ago, 90-day delinquencies show concern for the rest of the banks and stocks involved with the health of the U.S. consumer. This is not enough to send the stock lower by 5%, however, but the following factor is.
Citigroup Stock Selloff: Regulatory Speculation and Faltering Profits Behind the Decline
Citigroup's CEO, Jane Fraser, had to defend herself against accusations and speculations from analysts during the earnings call, all centered on the thought that Citigroup might suffer from what's known as an "asset cap." Recently, another bank was deemed guilty enough of wrongdoing to have an asset cap placed on it.
Shares of Toronto-Dominion Bank (NYSE: TD) are down over 13.5% from their 52-week high after the bank was accused of money laundering. While that has nothing to do with Citigroup, analysts are rightfully concerned about the possibility of these issues spilling over to other bank names.
These fears were sparked by the falling profitability at Citigroup, specifically with one of the industry's most important metrics. The bank's return on tangible common equity (ROTCE) fell to a low of 7%, which alarmed investors, considering most peers delivered a near-double rate of return.
Bank of America, for example, reported a much higher ROTCE of 12.8% on the same day. This creates concerns about Citigroup's management's ability to effectively invest the bank's capital to deliver industry-attractive rates of return, severely compressing Citigroup's future potential earnings per share (EPS).
A 7% decline in Citigroup's EPS attracted further bearish sentiment and momentum for the stock. Starting with short sellers, the bank's short interest has been on the rise over the past quarter, from $1.5 billion to over $2.2 billion this quarter.
Broader markets agree with Citigroup stock's further potential downside, as investors can gauge through current valuation multiples compared to the rest of the finance sector. Specifically, investors can look at Citigroup's 18.5x price-to-earnings (P/E) ratio as a major discount to the finance sector's average valuation of 49.5x today.
Markets typically discount a stock when they expect lower growth or lower prices ahead, which makes sense after Citigroup's fall behind its peers in some of the important profitability metrics and price action.
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