We invest in exciting, fast-growing and innovative Asian companies. This means going on a journey in which we find and research companies in Asia (excluding Japan) that are trying to do something new and difficult and that are able to double sales and/or profit within three to five years.
Currently, we believe there is a structural shift under way in semiconductors. On the demand side, the digitalisation of consumer electronics (smart products such as robotic vacuum cleaners), their connectivity to the internet and the soaring preference for electric over traditional petrol-fuelled vehicles, creates huge demand for these computer chips. And it comes not just from end users, but also from the communications networks that enable them to talk to each other, and the businesses that support them.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
On the supply side, the companies that make these chips are capacity constrained, due to the enormous amount of time and other resources required. These foundries sell as much as they make and can’t make enough semiconductors to satisfy demand – the ideal condition for pricing power – and profits. Here are three semiconductor businesses we hold that follow our growth-squared philosophy.
TSMC: the cutting edge of chip-making
Taiwan Semiconductor Manufacturing Company (NYSE: TSM, Taipei: 2330) is a $600bn (by market cap) behemoth. This Taiwanese manufacturer of computer chips is at the cutting edge of the semiconductor production process. It is outspending Intel, its closest Western rival, by at least $15bn this year to maintain its technological edge. Analysts are forecasting TSMC will achieve double-digit earnings growth every year for the next five years.
United Microelectronics: profiting from the capacity crunch
United Microelectronics Corporation (NYSE: UMC, Taipei: 2303) is another Taiwanese foundry. It’s much smaller than TSMC, with a market cap of $28bn. Think of it as a younger sibling that benefits from taking business that TSMC is unable to fulfil – much in the same way you would have to settle for the pub opposite if the initial one you wanted to go to is already full, except that this is a huge multi-billion-dollar factory filled with technologically sophisticated machinery operated by exceptionally qualified professionals.
SK Hynix: better memory for electric cars
Finally, across the East China Sea there’s SK Hynix (Seoul: 000660), a South Korean semiconductor play with a market cap of $72bn. SK Hynix operates in a different part of the market from TSMC and UMC – it is focused on making memory and storage, such as dynamic random access memory (DRAM) chips and flash memory.
In the same way that you would have the expectation of being able to use a car for many years and for it to work safely, the next generation of memory chips that go into electric cars will need to be a lot longer lasting, more reliable, and much more expensive than the memory chips that go into mobile phones. SK Hynix is expected to double its sales and quadruple its earnings per share in less than five years.
-
HMRC confirms crypto ETN ISA statusWith crypto ETNs now technically available for UK retail investors, HMRC has confirmed they can be held in an ISA – but there’s a complication
-
Pensioners targeted in fine wine scams – the tactics to watch forWine has emerged as the latest lure in investment fraud, with pensioners being specifically targeted by scammers
-
Pierre-Édouard Stérin wants to make France great againConservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging marketsOpinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growthPinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summerThe US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with folliesThe best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuationAEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefullyShares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
