After experiencing a robust bull market for two years, the S&P 500 encountered its most challenging month since 2022, declining by 5.8% in March. Various elements are currently impacting stocks, including concerns about former President Donald Trump’s trade war, diminishing consumer confidence, valuation-related pressures, and inflation rates that remain above the Federal Reserve’s target of 2%.
Amid fears of a potential recession, selecting stocks may appear challenging. However, market sell-offs present excellent opportunities to purchase stocks at a discount, as many reputable companies are available at reduced prices. The following analysis highlights two prominent stocks considered valuable acquisitions for holding over the next five years.
1. Taiwan Semiconductor
Taiwan Semiconductor Manufacturing (TSM) is the world’s leading contract chip manufacturer and enjoys a substantial economic moat. It plays a critical role in the global economy as the primary chip supplier for major corporations such as Apple, Nvidia, Advanced Micro Devices, and Broadcom.
The company’s strategic position has been especially advantageous with the rise of artificial intelligence (AI), leading to significant increases in sales and profits. Taiwan Semiconductor holds a dominant position in the production of advanced chips globally, capturing approximately 90% of the market share, which is particularly valuable in the AI era.
However, the semiconductor sector is inherently cyclical. This cyclicality has contributed to a decline in TSMC’s stock as the overall market has retracted. By the end of March, Taiwan Semi’s stock had decreased by 26% from its recent peak, presenting a compelling buying opportunity.
Currently, TSMC shares are trading at a price-to-earnings (P/E) ratio of 24.3, which aligns with the S&P 500, even though TSMC is expanding at a much faster rate. While geopolitical tension pertaining to Taiwan and the potential risk of Chinese invasion have caused some investors to be cautious, the company is actively diversifying its manufacturing footprint globally. Additionally, TSMC received funding from the CHIPS Act and announced a $100 billion investment in the U.S. at the White House a month prior.
Although its revenue growth might slow if the global economy weakens, the momentum from AI is likely to continue propelling the company’s growth in the long term. With a clear leadership position in a significant and expanding industry, coupled with a favorable price following the sell-off, TSMC is projected to be a robust investment to retain over the next five years.
2. The Trade Desk
The Trade Desk (TTD), the leading demand-side platform (DSP) in the ad-tech industry, presents itself as another undervalued stock. The company’s share price dropped significantly following its Q4 earnings report in February, during which it missed its revenue forecast for the first time since going public. Despite CEO Jeff Green admitting to internal errors rather than attributing the shortfall to competition or external factors, the stock was perhaps priced too aggressively before the report.
Potential investors might choose to await another earnings report from The Trade Desk to determine if the Q4 results were merely an anomaly. Nevertheless, with the stock having fallen by 60%, it is considered a valuable purchase at the current price.
Although the Q4 performance did not meet expectations, The Trade Desk exhibited strong growth with a 22% increase in revenue, reaching $741 million. Like the semiconductor industry, advertising is a cyclical domain, yet The Trade Desk delivered solid results in 2022, even as much of the advertising sector faced hardships.
Valued at a P/E ratio of 33 based on adjusted earnings, the stock is reasonably priced for a company that maintains prominent industry leadership. The Trade Desk continues to hold considerable growth prospects in AI, Connected TV, and other areas, and its historical performance and current valuation make it a promising contender to outperform over the next five years.