Stock prices will rise and fall in the short term, and you won't ever buy at the lowest possible price or sell at the very peak. Sophisticated analysis can't do that for you; perfect timing comes down to a game of pure chance.
Great investing isn't about perfect timing but about finding outstanding companies and buying them at reasonable valuations. Master investor Warren Buffett often emphasizes that timing the market is a losing game. Finding promising businesses poised for long-term growth is where the real returns are made.
That said, let's dive into two sizzling hot stock picks. You already missed the ideal buy-in point at the absolute market bottom, since they have gained more than 25% this year. But that's OK, because you can still buy into their incredible long-term growth stories at fair and reasonable share prices.
Micron's pending upswing should be worth the wait
First, let's have a look at memory-chip maker Micron Technology (MU 2.92%).
Memory chips are coming out of another lengthy downturn. This is a cyclical industry, and the latest downturn was amplified by slowdowns in many key target markets. Smartphones aren't selling like they used to. Although modern cars need more and more computer memory over time, that sector has faced low production numbers in recent years. Even the hyperscale data-center clients slowed down their system builds in 2022.
But the industry is in the middle of the next upswing, with surging demand for memory chips and a sectorwide (and very deliberate) reduction in supply-side manufacturing volumes.
The inflation-based economic crisis of 2022 is leading up to a short recession and then -- most likely -- another healthy bull market. At the same time, artificial intelligence (AI) is all the rage right now. Those systems need plenty of data storage and short-term operating memory. That's good news for Micron. Car makers are getting their hands on much-needed components again amid surging demand for electric vehicles (EVs). That's two more checks in favor of memory-chip sales.
And when the recession blows over, you can bet consumers around the world will want to upgrade their aging phones and tablets. We're looking at pent-up demand for 5G networking, not to mention devices that can process AI functions locally.
So, Micron's concrete business upswing may not be immediate, but smart investors are already spotting the signs of potential gains. Like I said, this is a cyclical industry, and we have seen this pattern before. There may be a couple of false starts along the way, but Micron is preparing to take off again. For historical examples of how this can work out, Micron investors pocketed 530% returns in a two-year period that started in 2012 followed by a similar surge in 2016.
I can't promise Micron shares will shoot up 500% over the next two years, but the market development and historical patterns suggest that Micron could provide strong returns for patient investors. It's not too late to jump on this opportunity.
Image source: Getty Images.
Taiwan Semiconductor: Risks and rewards in Southeast Asia
Let's stay within the semiconductor industry for our second pick. I see a ton of promise in Taiwan Semiconductor Manufacturing (TSM 1.26%), the leading third-party manufacturer of other companies' chip designs.
I can already hear the cries: "Warren Buffett just sold his Taiwan Semiconductor stock! Isn't that a bad sign?"
Well, Buffett is primarily concerned about the political stability of Taiwan. That's a fair point, and I don't blame you if you want to stay away from investments in this volatile region. You might prefer the Micron Technology pick discussed earlier where the company's Taiwanese exposure is balanced by manufacturing facilities in places like Idaho, Singapore, and Japan.
Despite the geopolitical issue, Warren Buffett has nothing but admiration for Taiwan Semiconductor. The investment guru heaped compliments on the company at Berkshire Hathaway's annual meeting earlier this month:
"Taiwan Semiconductor is one of the best-managed companies and most important companies in the world," he said. "And I think you'll be able to say the same thing 5 or 10 or 20 years from now. [...] There's no one in the chip industry that's in their league, at least in my view."
That's high praise from a master of the investing craft. Many investors are willing to accept the stock's political risks thanks to this high-quality management team and decades of firmly established leadership in the chip-making industry.
So, despite Berkshire Hathaway's exit from its Taiwan Semiconductor investment, the stock is up 24% year to date. Yes, there is real risk here, but there's also a significant opportunity for long-term growth. Any investment carries risk, and it's up to you whether you can accept this stock's particular hazards, but the potential rewards of Taiwan Semi's top-quality business could make it a smart addition to a well-diversified portfolio.
Whether you're ready to put your money to work in Taiwan Semiconductor or Micro Technology right now, you should certainly keep a close eye on this pair of top-notch companies.
