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Is Taiwan Semiconductor (TSM) a Smart Long-Term Buy?

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Polen Capital, an investment management firm, published its “Polen Global Emerging Markets Growth Fund” first quarter 2022 investor letter – a copy of which can be downloaded here. The Portfolio returned -14.68% gross and -14.96% net of fees, respectively, while the Index returned -6.97%. Foreign currency positively contributed to Portfolio performance in select markets. Try to spend some time looking at the fund’s top 5 holdings to be informed about their best picks for 2022. 

In its Q1 2022 investor letter, Polen Global Emerging Markets Growth Fund mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and explained its insights for the company. Founded in 1987, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is a Hsinchu, Taiwan-based semiconductor manufacturing company with a $486.2 billion market capitalization. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) delivered a -22.06% return since the beginning of the year, while its 12-month returns are down by -21.54%. The stock closed at $93.77 per share on June 03, 2022.

Here is what Polen Global Emerging Markets Growth Fund has to say about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q1 2022 investor letter:

"Taiwan Semiconductor (also known as TSMC) is the world’s leading semiconductor foundry, manufacturing 10,761 different products using 272 distinct technologies for 499 different customers. In our experience, fierce competition, the challenge of keeping pace with new developments, and heavy capital requirements tend to make high returns in technology hardware businesses tough to maintain. TSMC, however, in our opinion, is an exception to the rule. For over 20 years, the company has delivered approximately 20% returns on internally invested capital despite elevated competitive intensity and rapidly evolving chipmaking technology. The company enjoys somewhat of a duopoly with Samsung in producing leading-edge nodes; the fastest and most powerful chips used in the most advanced technology. We expect TSMC to uphold its leading market position over the next decade as a result of its business moats which include technological leadership, an execution-focused corporate culture, as well as its established customer relationships.

Although all investments carry risks, some of TSMC’s risks are more company specific. As semiconductors become increasingly critical, countries and leaders are beginning to focus more on ensuring a steady domestic supply. Will the semiconductor industry have to prioritize national interests over shareholder returns? Will China act forcefully to secure access to TSMC’s leading-edge nodes? These risks are hard to quantify but must be weighed against the long-term investment opportunity the company offers. We believe TSMC will continue to compound earnings growth at rates in the high teens for at least the next five years and has potential to make a favorable investment."

Semiconductor
Semiconductor

Photo by Yogesh Phuyal on Unsplash

Our calculations show that Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was in 81 hedge fund portfolios at the end of the first quarter of 2022, compared to 72 funds in the previous quarter. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) delivered a -10.75% return in the past 3 months.

In Apriil 2022, we also shared another hedge fund’s views on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.

Disclosure: None. This article is originally published at Insider Monkey.