Taiwan Semiconductor and Micron: After Hard Hits, Potential Upside

 |  Includes: MU, TSM
by: Andy So

I have my sights set on picking up some shares of Micron Technology, Inc. (NASDAQ:MU) and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). Both stocks are down for the year. Micron in particular has been hit quite hard. A flash memory partnership with Intel should bear some results as Intel Corporation gears up to market the product as a replacement for magnetic hard drives.

Retail pricing remains to be seen. If pricing is low enough, I see a large number of OEM’s picking up the technology. I’ve been waiting for years to see affordable flash-based hard drives, also known as solid-state hard drives. The technology has many inherit advantages over traditional hard drive designs. Flash drives have no moving parts, thus are prone to less damage, heat and noise. The best advantage over traditional hard drives I see is an incredible speed improvement.

Take a look at this Street.com article, Intel Prepares Flash Attack, for a look into the Micron and Intel partnership.

Taiwan Semiconductor Manufacturing is an incredibly well managed company in an industry that has seen minor incremental improvements since the downturn in demand after the .com days.

Let’s look at TSM’s very attractive key statistics:

Trailing P/E: 16.56
Foward P/E: 13.12
ROA: 10.52%
ROE: 22.82%
Total Cash: 7.11B
Total Debt: 582.26M

TSM’s price movement is heavily dependent on semiconductor supply and demand cycles. I’ve traded TSM in several profitable trades and covered the company in depth in previous articles. TSM is the 900 pound gorilla in the outsourced semiconductor fabrication business and holds significant clout over its competitors. A strong cash and market position will help the company whether any significant downturn in demand.

I like MU and TSM in the $8.50-$9.50 range. TSM option WPDAA.X in particular seems like a good deal once you think TSM has reached a bottom. The option has nearly no premium compared to current prices of the stock.