3 Momentum Stocks That Would Be a Great Addition to Your Portfolio The Fed's aggressive stance to tame inflation and recessionary concerns have weighed heavily on investor sentiments. Amid such market volatilities, quality stocks such as Taiwan Semiconductor (TSM), Halliburton (HAL), and...
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The Fed's aggressive stance to tame inflation and recessionary concerns have weighed heavily on investor sentiments. Amid such market volatilities, quality stocks such as Taiwan Semiconductor (TSM), Halliburton (HAL), and Overseas Shipholding Group (OSG), which have maintained solid momentum, could be wise portfolio additions now. Read on….
Investor optimism rekindled, owing to favorable macro data and the Fed opting for a less aggressive stance to tame the stubbornly high inflation. However, January's Consumer Price Index (CPI) slowed only slightly to a 6.4% annualized gain. CPI came in higher than the market forecast of 6.2%.
Fed Chair Jerome Powell, cautioning that it would likely be 2024 before inflation returns to the central bank's target rate of 2%, said, "The base case for me is that it will take some time and we'll have to do more rate increases and then have to look around and see if we've done enough."
In addition, advance retail sales for the last month rose 3%, far more than the expected 1.9%, suggesting consumers' incessant spending despite an uptick in inflation.
The mix of solid spending and robust hiring could enhance the pressure on the Fed to keep higher rates. The Fed expects to raise rates to 5% and above. Such persistent rate hikes could induce a fresh bout of volatility and tip the economy into a recession.
As the volatile market scenario is expected to continue in the near term, fundamentally strong stocks Taiwan Semiconductor Manufacturing Company Limited (TSM), Halliburton Company (HAL), and Overseas Shipholding Group, Inc. (OSG), having solid momentum, could be great portfolio additions now.
Taiwan Semiconductor Manufacturing Company Limited (TSM)
Headquartered in Hsinchu City, Taiwan, TSM manufactures, packages, tests, and sells integrated circuits and other semiconductor devices globally. The company's products are used in mobile devices, high-performance computing, automotive electronics, and IoT markets.
On February 14, 2023, TSM announced a distribution of a NT$2.75 per share cash dividend for the fourth quarter of 2022, to be paid to the common stockholders on July 13, 2023. This reflects the company's strong cash generation ability. The company also announced capital appropriations of approximately $6.96 billion for several purposes, including technology installation.
On December 6, 2022, TSM announced that in addition to its first fab in Arizona, which is set to begin production in 2024, it had also started the construction of a second fab, scheduled to begin production in 2026. Upon completion, TSMC Arizona's two fabs are expected to manufacture over 600,000 wafers annually, with a forecasted end-product value of more than $40 billion.
In terms of forward non-GAAP P/E, TSM is trading at 16.30x, which is 23% lower than the 21.17x industry average. The stock's forward EV/EBIT multiple of 12.92 is 25.7% lower than the industry average of 17.39.
TSM's net revenue increased 42.8% year-over-year to $19.93 billion in the fiscal fourth quarter that ended December 31, 2022. Its gross profit grew 68.7% from the prior-year quarter to $12.40 billion. Also, the company's net income grew 77.8% from the previous-year quarter to $9.43 billion, and its earnings per ADR grew 78% year-over-year to $1.82.
The consensus revenue estimate of $17.36 billion for the fiscal first quarter ending March 2023 indicates a 2.7% improvement year-over-year. Its EPS is expected to come in at $1.22. Additionally, TSM topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
TSM has gained 14.3% over the past three months to close its last trading session at $90.82. Moreover, it has gained 4.6% over the past month. The stock is trading higher than its 50-day and 200-day moving averages of $85.26 and $81.97, respectively, indicating an uptrend.
TSM's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TSM has an A grade for Quality and a B for Momentum and Sentiment. TSM is ranked #21 in the B-rated 92-stock Semiconductor & Wireless Chip industry.
Click here to see the additional POWR Ratings for TSM (Growth, Value, and Stability).
Halliburton Company (HAL)
HAL offers products and services to the energy industry worldwide. The company operates through two segments, Completion and Production; and Drilling and Evaluation. It provides production enhancement services, production solutions, drilling services, pipeline and process services, wireline and perforating services, and digital services.
On January 24, HAL's board of directors announced an increased quarterly dividend of $0.16 per share on its common stock, payable to the shareholders on March 29, 2023. The dividend increase demonstrates HAL's confidence in its business, customers, employees, and value proposition.
On November 29, 2022, HAL installed the industry's first single trip, electro-hydraulic wet connect in deepwater for Petrobras in Brazil, a significant achievement in downhole electric completion technology.
"This achievement paves the way for us to give customers the autonomous capability to control and manage reservoirs across their wells and assets and deliver on our Future of Completions®," said Mark Dawson, vice president of Halliburton Completion Technology, Halliburton.
In terms of forward non-GAAP PEG, HAL is trading at 0.34x, which is 49.2% lower than the 0.67x industry average. The stock's forward EV/sales multiple of 1.74 is 5.7% lower than the industry average of 1.85.
For the fiscal fourth quarter that ended December 31, 2022, HAL's total revenue increased 30.5% year-over-year to $5.58 billion. The company's operating income grew 77.5% from the prior-year period to $976 million. Adjusted net income attributable to the company rose 105% year-over-year to $656 million, while adjusted net income per share came in at $0.72, up 100% year-over-year.
Analysts expect HAL's revenue and EPS for the fiscal first quarter of 2023 (ending March 2023) to come in at $5.50 billion and $0.67, indicating increases of 28.3% and 92% year-over-year, respectively. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of HAL have gained 36.8% over the past six months and 1.7% intraday to close the last trading session at $38.58. The stock is trading higher than its 200-day moving average of $34.22.
HAL's POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Momentum and a B for Growth, Sentiment, and Quality. Within the B-rated Energy - Services industry, it is ranked #13 of 43 stocks.
Beyond what we've stated above, we've also given HAL ratings for Value and Stability. Get all HAL ratings here.
Overseas Shipholding Group, Inc. (OSG)
OSG is the owner and operator of a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products in the U.S. flag trade. The company serves independent oil traders, refinery operators, and government entities.
On December 8, 2022, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA for an additional three-year term commencing in December 2023.
"We believe the market continues to support attractive commercial opportunities for these vessel leases to supplement the strong and stable cash flow generation from our niche businesses," said Sam Norton, OSG's President and CEO.
On November 15, 2022, the company announced the purchase of $5 million shares of its common stock from Cyrus Capital at a price of $2.86 per share. The price paid in this share purchase equates to an enterprise value of roughly 4.5 times the expected adjusted EBITDA for 2022, an implied valuation considered very attractive for OSG.
In terms of trailing-12-month EV/Sales, OSG is trading at 1.81x, 6.5% lower than the industry average of 1.93x. Its trailing-12-month Price/Sales multiple of 0.78 is 40.3% lower than the industry average of 1.31.
OSG's shipping revenues increased 30.9% year-over-year for the third quarter that ended September 30, 2022, to $123.06 million. The company's net income came in at $13.25 million, compared to a net loss of $16.01 million in the year-ago period. Also, its EPS came in at $0.15, compared to a loss per share of $0.18 in the prior-year period.
Over the past six months, the stock has gained 41.6% to close the last trading session at $3.81. Over the past month, it has gained 7%. OSG is trading higher than its 50-day and 200-day moving averages of $3.25 and $2.77, respectively.
It is no surprise that OSG has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Momentum and a B for Growth, Value, and Quality. In the 46-stock B-rated Shipping industry, it is ranked first.
Click here to see the additional ratings of OSG for Stability and Sentiment.
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TSM shares fell $1.26 (-1.39%) in premarket trading Friday. Year-to-date, TSM has gained 20.15%, versus a 6.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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