In the field of investing, using multiple analytical methods can often give a clearer view than using just one. A specific tactic looks for high-growth stocks that are also showing positive technical patterns. The aim is to find companies with the basic driver for continued price increase—superior earnings and sales growth, along with good profitability and sound finances—while also finding a time when the stock's price movement indicates a possible rise from a phase of sideways trading. This two-part method tries to match a company's core business quality with good market timing.
Taiwan Semiconductor Manufacturing Co., Ltd. (NYSE:TSM), the top dedicated semiconductor foundry globally, recently appeared in a screen made to find this specific mix. The screen selects for stocks with high growth ratings, good profitability and financial scores, and a positive technical setup rating, implying the stock might be ready for its next upward move.
Fundamental Strength: The Driver for Growth
The foundation of this tactic is a company's basic ability to grow. For a stock to be a real growth option, it must show a strong and steady capacity to increase its earnings and sales. TSM's fundamental report, which you can examine here, shows a business performing very well.
- Superior Growth Measures: TSM gets a top Growth Rating of 9 out of 10. The company's recent results are notable, with Earnings Per Share (EPS) increasing 46.42% in the last year and Revenue rising by 31.61%. Also, this is not a single event; the long-term averages are just as strong, with EPS increasing at 27.10% and Revenue at 23.25% per year over recent years. Analysts project this pace to persist, predicting solid future growth in both EPS and Revenue.
- High Profitability: Growth is most effective when it is very profitable. TSM's Profitability Rating is a high 9/10. The company has sector-leading margins, including a Profit Margin of 45.10% and an Operating Margin of 50.83%, doing better than most of its semiconductor industry counterparts. Its Return on Equity (ROE) of 31.70% and Return on Invested Capital (ROIC) of 25.03% further highlight its effective use of capital to create value for shareholders.
- Satisfactory Financial Condition: While the company's Financial Health Rating is a moderate 5/10, important liquidity measures are positive. A Current Ratio of 2.62 and a Quick Ratio of 2.42 show more than enough ability to cover near-term liabilities. The company also has a low Debt-to-Equity ratio of 0.16, indicating minimal use of debt funding. This offers a stable base to pay for its large capital spending for future growth without high financial danger.
Technical Setup: Observing the Momentum
Positive fundamentals give the "reason" for a stock's possibility, but technical analysis can give hints on the "time." The technical report for TSM, found here, gives the stock a high Technical Rating of 8/10 and a Setup Rating of 7/10, pointing to a positive pattern for possible investment.
- Steady Long-Term Upward Trend: Even with recent market swings, TSM's long-term trend stays positive. The stock has done much better than the overall market, with a 12-month gain of over 130%, putting it in the highest group of all stocks. It continues to trade above its main long-term moving averages (SMA100 and SMA200), which are all rising, confirming the continued positive trend.
- Sideways Trading Near Highs: Lately, the stock has been moving within a sideways range after a strong rise. This time of limited movement can sometimes work to absorb earlier gains and form a base for the next rise. The technical analysis states that prices have been moving sideways recently with very little barrier just above the present price, which might permit a rise.
- Clear Risk Points: The technical setup finds specific support areas below the present price, which can help set possible risk points for investors. The closest important support is grouped in the mid-$330s, made by a mix of trend lines and moving averages. Having these set points allows for a more calculated evaluation of the trade's possible gain compared to its risk.
Why This Mix Is Important
The combination of these fundamental and technical elements is what gives this tactic its force. A high-growth, profitable company like TSM is a good asset. Still, even the best companies can have their stocks pause or drop in the near term. The technical setup rating tries to find times when the market's view of that good asset is changing from neutral or unsure to positive, possibly marking the beginning of a new rising stage. It tries to prevent buying during long periods of drop and instead focus on entries as momentum starts to build again next to the strong fundamental narrative.
For investors wanting to look at other stocks that fit this mixed standard of strong growth basics and positive technical setups, more results are available by checking this set screen.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. Investing has risk, including the possible loss of the original investment. You should do your own research and talk with a qualified financial advisor before making any investment choices.