News

Today’s episode of Full Court Finance at Zacks discusses where the stock market stands as Wall Street prepares for the start of third-quarter earnings season.

The episode then digs into two of the first major technology stocks set to report earnings in October—Taiwan Semiconductor (TSM) and Netflix (NFLX)—to see why investors might want to buy the stocks before their upcoming earnings releases and hold for the long haul.

See the Zacks Earnings Calendar to stay ahead of market-making news.

Wall Street sat on its hands on Wednesday and Thursday as it waits for updates on the conflict between Israel and Iran and the dockworkers’ strike.

October is a historically weak month during election years, which means investors shouldn’t be surprised if there is more volatility and selling heading into the presidential election.

Thankfully, despite partisan politics, Wall Street is largely apolitical in that investors are always looking to make money no matter who is office. For instance, average annual stock market returns during the Trump and Obama administrations—which included periods of unified and divided governments—were nearly identical: 16.0% and 16.3%, respectively.

The next major market-mover (not including what might happen in the Middle East or with the longshoremen strike) is almost certain to be third quarter earnings season.

Wall Street knows consumers are under pressure. The Tech and Finance sectors are the only two of the 16 Zacks sectors enjoying positive estimate revisions for third quarter earnings. This backdrop likely puts a lot of pressure on big tech to impress.

The two stocks we dive into today have soared over the last decade and the past year, and their earnings estimates are greatly improved compared to where they were this time last year.

Why Taiwan Semiconductor Stock is a Must-Own Tech and AI Investment

Taiwan Semiconductor Manufacturing Co. TSMreports its Q3 2024 earnings results on Thursday, October 17.

Taiwan Semi or TSMC is a straightforward long-term investment in technology, spanning data centers, semiconductors, smartphones, artificial intelligence, and the yet-to-be-imagined.

Taiwan Semi physically builds the most advanced chips on the market, boasting clients from Nvidia NVDA to Apple. Taiwan Semi is ramping up its industry-leading 3-nanometer production, helping fuel the AI boom. TSMC reportedly grabbed 61% of the semiconductor foundry market in the fourth quarter of 2023, blowing away second-place Samsung’s 14%.

Image Source: Zacks Investment Research

Taiwan Semi’s semiconductor foundry-only business model helped TSMC evolve into the most dominant force in an industry that is the bedrock of all modern technology. Taiwan Semi’s moat is growing, and TSMC is addressing geopolitical fears by expanding its manufacturing footprint outside Taiwan.

Taiwan Semi is coming off a beat-and-raise second quarter. TSMC is projected to grow sales by roughly 24% in FY24 and FY25 to soar from $69 billion in 2023 to $106 billion next year. Taiwan Semi is projected boost its adjusted earnings by 25% and 28%, respectively, and its upbeat EPS revisions help it earn a Zacks Rank #2 (Buy),

Taiwan Semi stock more than doubled the Zacks Tech sector over the last 10 years, including a 73% YTD surge vs. Tech’s 23%.

TSM stock found support at its 21-day moving average and trades 16% below its average Zacks price target. Taiwan Semi stock is also trading at roughly neutral RSI levels despite sitting near its all-time highs.

Image Source: Zacks Investment Research

Taiwan Semi trades at a 34% discount to its 10-year highs at 22.4X forward 12-month earnings and 14% below the Zacks Tech sector—Nvidia trades at 36.6X. TSMC also pays a dividend and its balance sheet is robust.

Buy Netflix Stock Now and Hold the Streaming Giant Forever?

Netflix NFLXis set to report its Q3 results on Thursday, October 17.

Netflix revolutionized the entertainment industry. NFLX’s first-in-flight advantage and growing content library have helped it maintain its lead over Disney, Apple AAPL, Amazon, and countless other streaming TV companies.

Netflix’s expansion into live sports (deals with the NFL and WWE), reality TV, blockbuster movies, and more have helped it keep and gain subscribers. Netflix’s lower-cost ad-based tier is also gaining traction.

Netflix added 13.1 million net new paid subscribers in the fourth quarter of 2023. This was the most Netflix added in a quarter outside of Q1 2020 when Covid-19 hit. Netflix added 8.1 million net new subscribers in Q2 FY24, up 17% YoY to 277.7 million. Netflix expanded its ads tier membership by 34% quarter on quarter.

Image Source: Zacks Investment Research

Netflix is projected to grow its subscriber base by 14% in the third quarter. The streaming power is expected to boost revenue by 15% in 2024 and 12% in 2025 (adding roughly $10 billion to the top-line vs. 2023). Netflix’s upcoming growth is set to blow away its 2023 and 2022 expansion.

NFLX is projected to grow its adjusted earnings by 59% in 2024 and 19% next year. Netflix’s recent EPS revisions stagnation lands it a Zacks Rank #3 (Hold). Still, Netflix’s overall outlook for FY24, FY25, and FY26 has surged over the last year.

Image Source: Zacks Investment Research

Netflix shares have soared 1,000% in the last 10 years to triple the Tech sector. Netflix stock has surged 200% the last two years and it finally broke above its 2021 peaks during the last few months.

Netflix stock could break out meaningfully higher if it impresses Wall Street with strong guidance.

Valuation-wise, Netflix trades at over a 90% discount to its all-time highs and 50% below its 10-year median at 32.6X forward earnings.

Zacks' Research Chief Names "Stock Most Likely to Double"

Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.

This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Free: See Our Top Stock And 4 Runners Up

Want the latest recommendations from Zacks Investment Research? Today, you can download 5 Stocks Set to Double. Click to get this free report

Apple Inc. (AAPL) : Free Stock Analysis Report

Netflix, Inc. (NFLX) : Free Stock Analysis Report

NVIDIA Corporation (NVDA) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.