Sudden drops in stock prices can be frustrating, but it helps to look at these market dips from a historical lens.
Since 1916, the Dow Jones Industrial Average (^DJI 0.95%) has experienced declines in 35 different years. In 18 of those years, the Dow fell by double-digit percentages. The Dow is currently down 13% in 2022. The last year the Dow finished the year down more than 10% was 2008.
Each of these down periods has been followed by strong rebounds in stock prices. The Dow has finished the year up 72 times over the last century.
If you've got $3,000 in cash that you can afford to invest, you can jump-start your retirement goals by investing it in a down market. Of course, you want to pick strong companies that can keep growing in value over many years. Here are two leading semiconductor stocks that I would be comfortable buying while they are down.
Image source: Getty Images.
1. Taiwan Semiconductor Manufacturing
Leading semiconductor companies are attractive areas to look for investments. The world is increasingly going more digital, with chip demand ramping up across automotive, data centers, and mobile. Companies across several industries, such as healthcare and finance, are investing heavily in high-performance computer chips to process large data workloads at record speeds. This is fueling substantial growth for Taiwan Semiconductor Manufacturing (TSM 4.37%).
However, semiconductor companies have historically been cyclical, meaning business results can suffer during recessions in the economy. That's why shares of TSM are down 27% year to date. But if you had bought 10 years ago, you would have nearly quadrupled your money even after the recent decline in the share price. That past return speaks to the upside potential of TSM and why you want to consider holding this chip stock for the long term.
TSM manufactures chips for other semiconductor companies, including Nvidia, Advanced Micro Devices, Intel, and Broadcom (AVGO 0.54%). As these companies innovate and push the boundaries of speed and performance with their processors, TSM piggybacks their growth.
NYSE: TSM
Key Data Points
Revenue growth remained above 30% year over year through the first quarter and even accelerated to 55% in April. More than 80% of its revenue came from high-performance computing and smartphone demand. Management believes it is entering a period of sustained growth based on the growing demand for 5G, advanced computing applications, and other electronic devices.
TSM is a profitable business, converting $0.38 of every dollar of revenue into profit. TSM uses that high profit margin to pay out a dividend to shareholders. The dividend yield is currently 2.2%.
At a price-to-earnings (P/E) ratio of 21, TSM could be significantly undervalued compared to where it might trade after another five years of growth.
Image source: Getty Images.
2. Broadcom
Another attractive tech stock to consider is Broadcom. It makes thousands of chip products used in data center networking, home connectivity, cable modems, Wi-Fi routers, telecom equipment, smartphones, and many industrial applications.
The stock has outperformed the Nasdaq Composite year to date, down 15% compared to the index loss of 27%. Broadcom has been in business for 50 years, so it knows how to navigate challenging economic conditions.
NASDAQ: AVGO
Key Data Points
In fact, despite the sell-off, Broadcom is performing quite well despite the macroeconomic headwinds. The company got off to a great start this year, reporting revenue of $7.7 billion in the first quarter, up 16% year over year. Growth was driven by strong enterprise demand and data center operators.
What's more, management expects growth to accelerate in the second quarter based on a strong recovery in information technology spending and further upgrades in data centers.
Broadcom is a profitable business that also pays a growing dividend. Based on forward 2022 earnings estimates, the stock trades at a forward P/E ratio of 16 and pays an above-average dividend yield of 2.7%. That looks undervalued compared to the average stock's P/E ratio of 21 based on companies included in the S&P 500 index.
The increasing computerization happening across every sector of the economy is the fundamental tailwind driving growth for TSM and Broadcom. Splitting the $3,000 between the two could be all the chip exposure an investor needs in a well-rounded investment portfolio.
