The bulls continue to run the show on Wall Street. Why? Well, it’s because the smart money now basically knows what it can expect on three key fronts, explains growth stock expert Jim Woods, editor of Intelligence Report.
The first is fiscal stimulus, and here the markets expect a new COVID-19 relief package of at least $1.5 trillion, and perhaps as much as $1.9 trillion, to be passed sometime in the next several weeks.
Second, the market has heard from the Federal Reserve, and here the message is unambiguous — not only will there be no “tapering” of the bond buying program that’s kept interest rates at near zero, but the Fed isn’t even worried about the prospect of inflation rearing its ugly head.
This is as a result of wide-open monetary accommodation or the flood of fiscal stimulus that largely has made its way into the system. Plus, there is the nearly $2 trillion in stimulus expected soon.
Third, on the COVID-19 and vaccine fronts, there has been material improvement of late as we have seen improved metrics nationwide on the number of new coronavirus cases, hospitalization rates and death rates.
All of this improvement comes against the backdrop of a mostly concluded Q4 earnings season that was far more impressive than most analysts expected.
According to NASDAQ, earnings growth for the fourth quarter has turned positive after three-straight quarters of declines. Not the least bit surprising to me is that the shift into positive territory for quarterly earnings growth in Q4 comes to us thanks to big earnings growth in the technology sector.
Now, speaking of technology, one sector that is seeing a big move higher of late is semiconductor stocks. The benchmark ETF in the space is the iShares PHLX Semiconductor ETF (SOXX). This fund is up some 28% over the past three months.
One big reason why is that demand for semiconductor chips has soared with the pandemic work-from-home wave, as well as demand for chips to run everything from smart cars to smart appliances to cell phones.
In fact, the shortage of chips now has even garnered the attention of the White House, as President Biden is expected to sign an executive order in the coming weeks to address a shortage of semiconductor chips used by U.S. industries.
Such an order would basically be a reversal of the Trump-era trade policies on Chinese semiconductor companies. It also will be bullish for the chip sector, as new policies will mean more chip sales across the industry.
To take advantage of this situation, I want you to buy Taiwan Semiconductor Manufacturing (TSM). The company is one of the world’s leading semiconductor chipmakers, and it is known as a “foundry” firm, meaning it is a contract manufacturer that produces chips for other branded chipmakers. By contrast, rival Intel (INTC) designs and makes its semiconductor chips in-house.
The great thing about TSM’s market positioning is that it has managed to create the smallest, and fastest, chips on the market. The company is mass producing chips at a scale of five nanometers, whereas Intel’s chips are double that size at 10 nanometers. And in the chip world, smaller is better, faster and more efficient.
What I love about TSM is that the company is an earnings growth powerhouse, with earnings per share (EPS) growth over the past several years that has outpaced about 90% of all stocks in the market.
Moreover, the share price performance of TSM over the past 52 weeks has been most impressive, with a gain of 143%, which also has outpaced nearly 90% of all publicly traded stocks.