Investors have noticed the market’s sustained upward moves this year. The trend is increasingly difficult to ignore as some stocks reach valuations reminiscent of 2021.
If the recent increases become a sustained bull market, investors will want to take a closer look at stocks the rally has thus far missed. That means investors looking for such cheap stocks will want to consider Taiwan Semiconductor Manufacturing (NYSE: TSM), PagSeguro (NYSE: PAGS), and Qualcomm (NASDAQ: QCOM) — all tech companies with significant growth potential. Let’s find out a bit more about these three reasonably valued stocks.
1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing, better known as TSMC, is the world’s leading third-party chip producer. Almost every major chip design company outsources at least some of its production to TSMC, and as of Q4 2022, it claimed 59% of the third-party chip manufacturing market, according to TrendForce.
TSMC’s stock fared poorly during the latest chip downturn as demand fell. Moreover, escalating tensions between Taiwan and China worried investors since most of the company’s manufacturing occurs in Taiwan.
However, AI may come to TSMC’s rescue as Nvidia and other companies forecast that the trend will lead to a massive surge in chip demand. And despite geopolitical concerns, China also depends on chips from TSMC, reducing the likelihood that such tensions will affect the company.
Admittedly, its 3.6% year-over-year revenue growth in the first quarter of 2023 pales in comparison to its 42.8% growth in Q1 2022. Nonetheless, the 2022 growth numbers show how TSMC performs in a more vibrant chip environment. With the stock trading at a price-to-earnings ratio of 17, a sustained uptrend may serve as a buy signal.
Most U.S. investors are probably unfamiliar with Brazilian fintech PagSeguro. While it offers numerous fintech services to individuals and smaller businesses, it’s best known in its markets for its peer-to-peer payments platform, which resembles PayPal‘s Venmo.
Like other fintechs, its stock was on fire before pandemic-related shutdowns and high inflation in Brazil pared back its business. Between early 2021 and late 2022, the stock at one point lost close to 90% of its value.
However, economic growth recovered in Brazil, and inflation there fell significantly. That healthier economic environment helped the company boost its total finance volume by 34% year over year in Q1, leading to a 61% increase in its total banking volume.
Revenue growth has not entirely caught up — it increased by 9% in Q1 compared with the year-ago quarter. But the increased business activity bodes well for the future.
Some investors have begun to notice the trends: The stock is up by more than 15% since the beginning of the year. But given that it’s still trading at a price-to-earnings ratio of just 11, it likely will see considerable multiple expansion as its revenue growth accelerates.
Qualcomm is the leading manufacturer of 5G-enabled smartphone chipsets. One might think with its technical lead and the need among consumers to upgrade their devices, Qualcomm would experience massive revenue growth. However, macroeconomic uncertainty and dependence on China, which is responsible for almost two-thirds of its revenue, have weighed on the company.
Amid its challenges, Qualcomm diversified into the Internet of Things and automotive applications to promote future growth. Still, its on-device AI tech may ultimately generate the most optimism. It distributes generative AI workloads between the cloud and edge devices, allowing them to deliver more powerful performance.
Nonetheless, Qualcomm’s recent business performance does not reflect its potential. In its fiscal 2023 second quarter (which ended March 26), its revenue fell 17% year over year. That is quite a change from its full fiscal 2022 when revenue grew by 32%.
Qualcomm stock is up 11% year to date, which gives it a price-to-earnings ratio of 13. Assuming its hybrid AI tech takes off, its revenue growth could return.
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Will Healy has positions in Qualcomm. The Motley Fool has positions in and recommends Nvidia, PagSeguro Digital, PayPal, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short June 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.