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Big Tech, Big Swings
Issue // December 27, 2022
UPDATE
Merry Christmas and Happy Holidays
By The MARK IT. Team
š¤ļø Good morning, and happy Tuesday. Weāre hoping everyone had a great Christmas weekend and break. Hopefully, the winter freezes and travel closures havenāt been too much for everyone to bear this past week. Weāre looking forward to finishing 2022 off on a high note with this newsletter before we relax with our families for New Yearās.
WEEK IN REVIEW
Source: rawpixel
With the market being closed as usual for this past weekend and Monday, there wasn't any volatility or big swings to report on leading into the week of the 26th. Weāll have to see how the market performs this morning at open.
Last week, however, did continue the dips we reported on in our Trains and Trucks newsletterādecreases largely caused by the interest rate hike and recession fears. Thursday saw the S&P drop 0.79% with a modest 0.58% recovery on Friday.
WEEKLY WATCHLIST
Similar to last week, this weekās watchlist consists of two power-players in the tech space. While itāll be interesting to see how these companies perform today after the market opens, weāre flagging these stocks as long-term value stocks as we donāt see much volatility.
STOCK #1
Alphabet Inc/Google (GOOGL)
What is commonly referred to on Capitol Hill or in the media as āBig Techā is, in reality, a group of large tech companies with large market caps and growth. The top five of these companies in terms of performance and growth have been referred to in the past decade as FAANG companies: Facebook (now Meta Platforms), Amazon, Apple, Netflix, and Google (now Alphabet). More about FAANG stocks.
Each one of these companies has shown to be a great investment in the past decade. Many have outperformed the overall market, have low debts, and have competent and consistent leadership. The question going forward is how these stocks will perform in the next 5-10 years.
Google specifically has dropped significantly since its Covid era high of $148 per share. At Fridayās market close, the stock price was $89.23 per shareāa whopping 40% drop. This, however, does create the possibility of buying in at an undervalued price based on a discounted cash flow calculation. Discounted Cash Flow (DCF) Explained
Source: Google Finance
BY THE NUMBERS
ā Increasing cash flows: Googleās cash flows have been increasing by 23.8% on average since 2013, with 28% per year for the past five years.
š No dividend: Those looking for a consistent dividend from a tech giant will want to look elsewhere.
ā Undervalued according to DCF: According to our discounted cash flow calculation, a single Google stock priced at Friday's close of $89.23 is between 20-22% below its intrinsic value.
ā Low debt: As noted above, most tech giants have huge market caps of well over 1T with low relative debt. Google is no different with a 1.158T market cap compared to 28B in debt.
IN THE NEWS
One of the bigger drops in Googleās share price recently was likely due to the company violating an antitrust agreement with the European Union. Google was fined $4.13B on September 13 for requiring Android devices to use Google as the sole search engine. Since this act restricted Android users to only one search engine, the court deemed the action monopolist and flagged the company.
STOCK #2
Taiwan Semiconductor (TSM)
Being the largest chip manufacturer in the world, itās no secret that Taiwan Semiconductor Manufacturing Company has been on the rise in the past few years as more tech giants are looking to have their phones and computers compete at the highest levels.
Even the legendary Warren Buffet has caught on to the potential of Taiwan Semiconductor. In his most recent 13-F filings from November, he was shown to have bought 60 million brand-new shares in the company, before then he had none. Buffet Q3 2022
Source: Google Finance
BY THE NUMBERS
ā Increasing cash flows: Taiwan Semiconductor has increased cash flows by 18.13% on average since 2013. Free cash flow in 2013 was 2.01B compared to 12.4B after the most recent 2022 quarter.
ā Great dividend: With a 2.37% dividend yield, Taiwan Semiconductor has a higher yield than the S&P average of 1.82%.
ā Undervalued according to DCF: According to our discounted cash flow calculation, a single Taiwan Semiconductor stock at the Friday market close price of $74.89 may be 30% undervalued. A healthy margin of safety for value investors when doing projections.
ā Low debt: Looking at the balance sheet, Taiwan Semiconductor has approximately 24B in total debt compared to its overall market cap of 387B.
FINAL NOTE
While we give Taiwan Semiconductor all green marks for the data that we researched this week, this isnāt conclusive buy by any means. Value investors should do their own discounted cash flow calculations and research before deciding to buy. Worries about a recession or further interest rate hikes come 2023 might not make this a profitable stock in the short run.
Source: Fortune Live Media via flickr
ONE MORE THING
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