Update Taiwan Semiconductor (TSM)

Everything is working out exactly as I planned when I bought Taiwan Semiconductor Manufacturing (TSM) on October 20, 2009—with the small exception of the share price.

When the company reported fourth quarter 2009 earnings on January 28, it confirmed the two major parts of my investment thesis.

First, a global recovery in the PC, wireless handset, and digital consume product markets has started to drive up sales. In the fourth quarter sales grew by 43% from the fourth quarter of 2008. For 2010 Taiwan Semiconductor forecast a 29% growth rate for the semiconductor foundry industry. Read more

Buy Intel (INTC)

Sell on the news, is it?

Well, thanks.

I thought Intel (INTC) would run away from me after yesterday’s (January 14) great earnings report but apparently traders have decided to take profits on the news ahead of the long Martin Luther Day weekend. And that gives me a chance to add the shares of Jubak’s Picks.

(I think it looks increasingly like the market will be able to depend on technology stocks for leadership in early 2010. Good thing because the other sector showing signs of leadership recently, financials, looks likely to stumble. See my post http://jubakpicks.com/2010/01/15/even-jpmorgan-chase-is-still-putting-new-money-away-to-cover-bad-loans/ )

Intel reported fourth quarter earnings of 40 cents a share, 10 cents a share better than Wall Street projections, and revenues of $10.57 billion (up 28.5% from the fourth quarter of 2008) and above the $10.17 consensus. Gross margin came in at 65% versus a Wall Street projection of 62.2%.

For the first quarter of 2010 Intel told Wall Street to expect revenue of $9.3 billion to $10.1 billion versus Wall Street’s pre-earnings report projections of $9.35 billion.

Intel’s results were especially strong for chips for servers where average selling prices increased, for notebooks, and for the low-power Atom processor designed for netbooks.

With Wall Street expecting an upturn in PC sales—which Intel’s results and comments confirmed—where did the surprise come from? Read more

Way down the road I can see early signs of the next stock market–and it’s not going to look a lot like the last market or today’s either

Sometimes the shortest distance to portfolio disaster is a straight line between two points.

This, I believe, is one of those times. If I’ve been clear about nothing else in the last few weeks, I hope I’ve been clear on how impossible it is to find a reliable, investible trend in the current market if you’re looking more than a few months out.

Most investors, even if they’re being very, very careful, are radically underestimating the difficulty of finding an investible trend right now. According to the conventional wisdom there are two alternative possible trends: either the trend line points up from here into a sustained recovery that looks a whole lot like the economy and market before the financial crisis or it points downward into a second bottom that looks a whole lot like the financial crisis after the recovery turns out to be a mirage.

But it’s not even that simple. There’s another alternative. One with more historical data behind it. In this scenario we’re still passing through a period of confusion without a trend. On the other side, and yet to emerge, is a new trend that won’t look like either the pre-crisis or crisis economy and stock market.

I have a very strong suspicion that a year from now things will look very different from both where we are now and from where we once were. I can’t give you all the details of that still to emerge trend but I can block in some of that third alternative.

Does that sound like I’m about to make your investing life even more confusing? You bet. But the likelihood, history shows us, is that the way to make money after a crisis like this won’t strongly resemble the way to make money before the crisis. So investors at least need to consider that now it really is time for something completely different. Read more

So where’s the growth? IBM’s earnings climbed but sales fell.

So where’s the revenue growth to keep the rally going?

The July 16 earnings results from IBM (IBM) were great news for IBM and its shareholders. The company did beat Wall Street earnings projections by 30 cents a share for the second quarter of 2009 when it reported $2.32 a share instead of the $2.02 Wall Street consensus. And gross profit margin did climb to 45.5% in the quarter from 43.2% in the second quarter of 2008.

But the news in IBM’s report wasn’t nearly as good—in fact I’d call it downright stinky–for the stock market and the economy as a whole. IBM’s revenues dropped, 13.3% from the second quarter of 2008, and fell short of analyst projections by about $340 million. The weakness wasn’t limited to the United States either. Revenue fell for the Americas (down 9%), Europe/Middle East/Africa (down 20%), and Asia/Pacific (down 7%).

If one of the strongest companies in the world can’t generate some revenue growth, then those green shoots of economic recovery that everybody keeps talking aren’t enough to support a sustained increase in stock prices from current levels. Read more

Buy Qualcomm QCOM

Buy Qualcomm (QCOM).  In the current stock market and economy you want to own stocks in the sectors of the market that are outperforming rather than lagging and you want to own companies that can grow even when the economy isn’t. I think cell phone chip-maker Qualcomm fits the bill on both accounts.

First, technology has been one of the strongest sectors this year. Witness the 16% return for the technology-heavy NASDAQ Composite Index in the first six months of 2009 versus the 1.8% gain for the Standard & Poor’s 500 stock index. Qualcomm shares have done even better, climbing 27% from the beginning of the year through June 30.  In a market like this you want to buy relative strength. (The shares have dipped about 10% in the current correction creating a decent buying opportunity.)

Second, Qualcomm has recently raised estimates for the fiscal year that ends in September 2009 and looks likely to outgrow both the U.S. and the global economy over the next 12 to 18 months. With next generation 3G wireless phone systems rolling out around the world, Qualcomm’s handset volume is projected to climb by 10% in the June quarter from that same quarter in 2008. A lot of that growth is coming from the world’s emerging economies—in Brazil, for example, the shift to 3G smart phones is just gaining momentum. Networks built on 3G technology use some flavor of the CDMA standard where Qualcomm’s patent position is strongest. The current market leading GSM standard now controls about 60% of the market so Qualcomm will see its global market share grow as the rollout of 3G technology moves market share toward CDMA.

That should make up for any slowdown in the U.S. market. Thanks to its patents Qualcomm collects a royalty on phones sold by Motorola, LG, Samsung, and other companies. Royalties and license feels make up about 40% of company revenues and come with an operating profit margin of near 90%. The other 60% of the company’s revenue comes from its chip-making business. Most of those chips go into the wireless phone sector but  Qualcomm is also moving into a new business. Its chips, built on the low-energy platform from ARM Holdings (ARMH), are on the march from cell phones to smart phones to net book computers, where they look like a winner against Intel’s (INTC) current generation of low-power Atom chips. That’s a whole new growth business for Qualcomm. The company is set to report earnings on July 22. As of July 15, I’m adding these shares to Jubak’s Picks with a target price of $55 by March 2010. (Full disclosure: I own shares of Qualcomm in my personal portfolio. I will be adding more three days after this note is posted. As is the rule for Jubak’s Picks, I won’t sell my personal position until three days after I’ve posted a sell on this blog.)