Should Value Investors Buy Taiwan Semiconductor (TSM) Stock?

Bonsai Partners recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 101.8% for the quarter (net of fees), outperforming their benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Bonsai Partners’ top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Bonsai Partners highlighted a few stocks and Taiwan Semiconductor Mfg Co Ltd (NYSE:TSM) is one of them. Taiwan Semiconductor Mfg Co Ltd (NYSE:TSM) is a semiconductor company. Year-to-date, Taiwan Semiconductor Mfg Co Ltd (NYSE:TSM) stock gained 38.0% and on August 17th it had a closing price of $80.19. Here is what Bonsai Partners said:

“Taiwan Semiconductor is the world’s largest outsourced foundry of semiconductor chips.

Taiwan Semiconductor roughly grew in line with the market: appreciating approximately 20% during the quarter.

While TSMC typically stays out of the limelight, the company was an object of media attention during the quarter due to the U.S.-China trade war. In particular, the Trump administration blocked TSMC from selling chips to its second-largest customer, the Chinese company Huawei.

I won’t get too deep into the specifics, but this was a remarkable development considering TSMC is a Taiwanese company with a limited U.S. presence. Fortunately, the market for semiconductor chips is a large and growing one, which led TSMC’s management to indicate that they expect to quickly replace Huawei’s lost volumes (which represent around 10-15% of sales). I continue to monitor this development.

This recent issue surprisingly highlights part of the rationale behind our TSMC investment – as the leading player in the outsourced foundry market, not having access to TSMC puts even a very large and capable company like Huawei at a significant disadvantage. Taiwan Semiconductor is an increasingly crucial partner for most players in the world of fabless semiconductors.”

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In Q1 2020, the number of bullish hedge fund positions on Taiwan Semiconductor Mfg Co Ltd (NYSE:TSM) stock decreased by about 14% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Taiwan Semiconductor’s growth potential. Our calculations showed that Taiwan Semiconductor Mfg Co Ltd (NYSE:TSM) isn’t ranked among the 30 most popular stocks among hedge funds.

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Video: Top 5 Stocks Among Hedge Funds

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