Buying and holding a single stock is a terrible investment strategy. Don't do it. However, it's a worthwhile mental exercise to understand what you value in a company and what risks exist for other stocks you may follow. For me, I'd want a stock that provides market-beating growth, is the top company in its industry, and is in a near-indisruptible position.
Very few companies exhibit all these traits, and some may operate in a more competitive industry than others, making disruption more feasible. However, one company I think checks all those boxes (and many more) is Taiwan Semiconductor Manufacturing (TSM 0.94%). This chipmaker is at the top of its industry, poised for significant growth, and has a solid foothold in its sector.
It's one of my top stocks to buy now and would be the only one I'd invest in if I were forced to hold only one.
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TSMC is the industry leader in chip fabrication
Taiwan Semiconductor (TSMC) is a leader in the chip fabrication industry and has become the top option in its space for a reason. The company doesn't sell directly to consumers; it only acts as a fabrication facility for its clients. This gives its clients peace of mind that TSMC won't take their proprietary designs and attempt to market them to consumers. This builds deep trust with TSMC, unlike with other chip foundries that a client may be competing with (like Samsung and Intel).
Additionally, Taiwan Semiconductor is typically a leader in emerging technologies. If you want the best chip technology available on the market (3-nanometer [nm] chips), you've got two options: TSMC and Samsung. While Taiwan Semiconductor's process has reached outstanding production yields (around 90%), Samsung's is reportedly stuck at around 50%. This increased scrap cost causes a higher end price for the customer.
NYSE: TSM
Key Data Points
Just because Taiwan Semiconductor has leading technology doesn't mean it's stopping, either. TSMC is slated to launch its 2 nm chip node later this year and the 1.6 nm node next year. This constant innovation cycle will ensure its clients remain with TSMC, as they can be assured that the company is always working toward the best chip technology possible, and it has a solid track record to back it up.
With clients such as Nvidia and Apple as loyal customers, TSMC has captured the business of some of the largest and most innovative tech companies. This makes Taiwan Semiconductor's leadership position fairly secure unless it experiences a major setback. Clients know what they get with TSMC, and they're unwilling to switch away for a slight price improvement or another lucrative deal because they recognize the excellence that TSMC provides.
Lastly, TSMC is diversifying away from its headquarters in Taiwan. It has established fabrication facilities in Japan and Germany and is investing $165 billion in the U.S. This will help TSMC sidestep any tariffs and also secure its supply chains.
The investment story is compelling for Taiwan Semiconductor, but there's also another solid reason why it's my top stock to buy and hold.
Management expects huge growth over the next few years
Another factor I mentioned was that the only stock I'd buy and hold needed to have market-beating growth. Taiwan Semiconductor has that in the pipeline, as management predicts its revenue will increase at nearly a 20% compound annual growth rate (CAGR) for the five-year period starting in 2025. That's monster growth and easily outperforms the market.
Beyond the five-year mark, an investment in Taiwan Semiconductor is a bet that we will use more chips with advanced technology, which seems like a no-brainer. Lastly, Taiwan Semiconductor is a smart buy today, trading for 26 times forward earnings.
TSM PE Ratio (Forward) data by YCharts. PE Ration = price-to-earnings ratio.
While that's a slight premium to the market (the S&P 500 trades for 23.7 times forward earnings), Taiwan Semiconductor is expected to deliver market-crushing growth over the next five years, which makes this price worthwhile.
Taiwan Semiconductor is one of my top stocks to buy now ad one of my highest convictions within my portfolio. I think it's a stock that nearly every growth investor should own, and the returns over the past few years speak for themselves.
