“Armchair Trader Series” Recommendations
- Week Beginning -
Monday,  September 28, 2020

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Option Trade – Thor Industries, Inc. (NYSE:THO) Calls

Thursday, 0ctober 01, 2020

** OPTION TRADE: Buy THO JAN 15 2021 100 CALLS at approximately $9.50 (Up to $10.30).

Place a pre-determined sell at $19.00.

Also include a protective stop loss of $3.90.

Thor Industries, Inc. (NYSE:THO), a maker of recreational-vehicles, is traveling well during the Covid-19 pandemic, reporting a surprise profit gain while its backlog soars. Thor Industries stock is on the rise.

A quarter ago, it was expected that this recreational vehicle maker would post a loss of $0.43 per share when it actually produced earnings of $0.43, delivering a surprise of 200%.

Over the last four quarters, the company has surpassed consensus EPS estimates three times.

Thor Industries made the transition from COVID-19 headwinds to pandemic tailwinds in its fiscal fourth-quarter 2020 results, released Monday. The recreational-vehicle manufacturer resumed full production during the quarter, months after a "virtual production standstill" in May.

The company also saw its manufacturing orders hit a record backlog on spiking demand for RVs as the pandemic continues to facilitate lifestyle changes among consumers. This is a clear signal for further gains in the "THO" symbol, which has already appreciated 30% year to date.

Prior to the 4Q results, Northcoast analyst Brandon Rolle upgraded Thor Industries to Buy from Hold with a price target of $110. The Street has a Moderate Buy consensus for Thor Industries based on 3 Buys, 2 Holds and no Sell ratings.

Thor Industries has an average analyst price target of $111.67 which suggests an additional upside of 19.8% in the coming months.

About Thor.....

Thor Industries, Inc, through its subsidiaries, designs, manufactures, and sells recreational vehicles (RVs), and related parts and accessories primarily in the United States and Canada.

It operates in two segments, Towable Recreational Vehicles and Motorized Recreational Vehicles. The company offers travel trailers under the Airstream Classic, International, Tommy Bahama, Flying Cloud, Sport, Basecamp, and Nest travel trade names, as well as Interstate series of Class B motorhomes; and gasoline and diesel Class A and Class C motorhomes under the Four Winds, Freedom Elite, Majestic, Hurricane, Chateau, Windsport, Axis, Vegas, Tuscany, Palazzo, Aria, Quantum, Compass, Gemini, and A.C.E trade names.

The Report.....

Thor reported earnings earlier this week for the fourth quarter of fiscal 2020 (ended July 31) which surpassed analysts’ expectations.

The 4Q EPS grew 28.1% Y/Y to $2.14 supported by higher sales, lower selling, general and administrative expenses and the company’s cost reduction measures. Analysts expected EPS of $1.28.

Fiscal fourth-quarter sales grew 0.55% Y/Y to $2.32 billion, beating analysts’ estimate of $2.24 billion. Sales were driven by a 2.8% rise in sales of the European RV business which gained from a favorable product mix and selective price hikes. Also, sales of the North American Towable RV segment grew 1.7%. 

Peak summer travel months fueled sales. And Thor expects the trend to continue. Its order backlog hit a record $5.74 billion, a 186.4% year-over-year jump.

The company experienced increasing retail demand over the course of the fiscal fourth quarter which drove the dealer inventories to historically low levels by the end of the quarter. Also, the fiscal 2020 year-end backlog touched a record high. Since the easing of social distancing restrictions, RV vehicles have been in demand as air and cruise travel are still not considered as safe options amid rising COVID cases.

In a call with investors, Thor Industries said recent surveys and dealer feedback show "first-time buyers represented more than 50% of recent new RV purchases."

Thor said recent focus on improving the camping experience bodes well for the industry.

"We are seeing investments being made in traditional campgrounds and nontraditional camping alternatives from 'glamping' to 'boondocking,' which allows for new and expanded opportunities to explore and enjoy the RV lifestyle," it said.

Government is also pitching in. The Great American Outdoors Act, signed into law in August, will inject some much-needed funds to spruce up national parks.

Going Forward.....

President and CEO Bob Martin commented, “Looking ahead, we expect a year of continued growth in fiscal 2021, and we concur with RVIA's [RV Industry Association] recent RoadSigns most likely forecast of an approximate 19.5% increase in calendar 2021 shipments over their most likely estimate for calendar 2020 shipments.”

Thor said the outlook is rosy for both its North American and European markets. Low borrowing rates are spurring sales. And RVs are seen as the safest way to travel and stay social distant during COVID.

Thor Industries doesn't expect any price pressure as the peak summer travel season comes to an end. It said dealer inventories are at historically low levels in North America.

"Demand in the market remains very high, such that our recent deliveries to dealers are being sold at retail very quickly and are not yet adding to dealers' lot inventory levels," it said. "We expect this cycle of robust retail sales, followed by a restocking cycle, will last at least through the end of our fiscal year 2021."

Industry tracker RV Industry Association (RVIA) estimates North American shipments in 2021 will reach 507,200 units, a 19.5% increase from 2020. That would be the best year since 2017.

The European market also looks promising. Dealer inventories in Germany, the largest RV market in Europe, are below normal stocking levels. Thor says its long-term outlook for future growth in European retail sales remains positive as more people embrace RVs.

Thor admits that like most companies it is dealing with COVID-related supply chain issues. "This situation is fluid, with specific shortages changing frequently in addition to some transportation constraints," it said. "(W)e are working closely with our supply chain partners to manage production and delivery of the components we need and, where necessary, seeking alternative supply solutions."

Analysts Thoughts.....

Northcoast Research upgraded shares of Thor Industries from a neutral rating to a buy rating in a research report released last Friday morning. They currently have $110.00 target price on the construction company’s stock.

Several equities analysts have recently commented on the company…..

  • Truist dropped their target price on shares of Thor Industries from $125.00 to $120.00 in a report on Monday, September 14th.
  • Citigroup started coverage on shares of Thor Industries in a report on Monday, July 6th. They issued a neutral rating for the company.
  • BofA Securities raised shares of Thor Industries from an underperform rating to a neutral rating in a report on Thursday, July 16th.
  • Zacks Investment Research raised shares of Thor Industries from a hold rating to a buy rating and set a $120.00 target price for the company in a report on Tuesday, June 16th.
  • Finally, Bank of America upgraded shares of Thor Industries from an underperform rating to a neutral rating and boosted their price target for the stock from $73.00 to $122.00 in a research note on Thursday, July 16th.

Summary.....

Thor Industries has a 1 year low of $32.30 and a 1 year high of $121.33. The firm has a fifty day moving average price of $98.62 and a 200-day moving average price of $85.61. The company has a debt-to-equity ratio of 0.93, a current ratio of 1.65 and a quick ratio of 0.96. The company has a market cap of $5.22 billion, a price-to-earnings ratio of 26.74, and a PEG ratio of 2.65 and a beta of 2.48.


Option Trade – Taiwan Semiconductor Mfg. Co. Ltd. (ADR)(NYSE: TSM) Calls

Tuesday, September 29, 2020

** OPTION TRADE: Buy TSM JAN 15 2021 85 CALLS at approximately $4.80 (Up to $5.30).

Place a pre-determined sell at $9.60.

Also include a protective stop loss of $1.95.

Taiwan Semiconductor Mfg. Co. Ltd. (ADR)(NYSE: TSM) — commonly referred to as TSMC — has become the world’s largest contract chipmakers. Many of the top technology companies look to TSMC’s fabrication plants to manufacture their custom chips.

The company is currently responsible for providing 5-nanometer and 7-nanometer processors for all newer versions of Apple's iPhone. Additionally, all of NVIDIA and AMD's next-generation CPUs and GPUs are made using the company's semiconductors.

TSM stock has been on a growth path for the past decade, a rate that accelerated over the past five years. It’s had its ups and downs, but there’s no arguing with overall gains of nearly 300% since 2015.

While the tech sector has been hammered in September, TSM stock has largely bucked the trend.

Clearly, this ‘A-rated’ stock has legs, making it one of the best semiconductor stocks to buy.

The Pandemic Effect.....

The COVID-19 pandemic has acted as a catalyst to digitize economies across the world, increasing the demand for Taiwan Semiconductor's core business products.

With many smartphone chips coming from TSMC’s foundries and 5G having a breakout year, TSMC’s second quarter revenue was up 28.9%, while profits were up 81% year-over-year. And the company is expecting that boost in demand for its silicon chips to increase, telling investors:“Moving into third quarter 2020, we expect our business to be supported by strong demand for our industry-leading 5nm and 7nm technologies, driven by 5G smartphones, HPC and IoT-related applications.”

About.....

Taiwan Semiconductor Manufacturing's has obtained lead in advanced semiconductor manufacturing over the past few years, and that lead only seems to be getting bigger. Last month, rival Intel, one of the last chipmakers that manufactures its own chips, admitted that it had run into a design flaw for its 7 nm manufacturing process, and would be falling some 12 months behind schedule. Intel had already ceded the leading-edge node lead to TSM in 2018, and that lead only seems to be getting bigger.

Advanced chip manufacturing is hard, but TSM's years of experience making a wide variety of semiconductors has given it a knowledge and process lead that other manufacturers are struggling to match. In fact, rival GlobalFoundries threw in the towel on competing with Taiwan Semi on the leading edge back in 2018. Intel itself even hinted that it may outsource some manufacturing going forward, likely to TSM. The U.S. government also recently subsidized TSM to build a new fabrication plant in Arizona on national security grounds.

It seems TSM has built itself a formidable moat in chip manufacturing.

The Report.....

Taiwan Semiconductor last posted its quarterly earnings data on Thursday, July 16th.

The semiconductor company reported $0.78 earnings per share (EPS) for the quarter, beating the Zacks' consensus estimate of $0.73 by $0.05. Taiwan Semiconductor Mfg. had a net margin of 36.96% and a return on equity of 27.42%. The company had revenue of $310.70 billion for the quarter, compared to the consensus estimate of $273.44 billion.

During the same period last year, the company earned $2.57 earnings per share. The firm's revenue was up 28.9% compared to the same quarter last year.

TSM will next report earnings on the 15th October, 2020.

The company is expected to report EPS of $0.81, up 30.65% from the prior-year quarter. The most recent consensus estimate is calling for quarterly revenue of $11.45 billion, up 21.84% from the year-ago period.

For the full year, Consensus Estimates are projecting earnings of $3.14 per share and revenue of $43.59 billion, which would represent changes of +46.05% and +25.86%, respectively, from the prior year.

SMIC Ban.....

The U.S. government's move to block shipments of certain technology products to Chinese chip foundry SMIC, or Semiconductor Manufacturing International Corp., a state-backed chipmaker and a key part of Beijing's buildout of its domestic chipmaking industry, will definitely benefit foundries outside of China, such as Taiwan Semiconductor Manufacturing.

The SMIC trade ban likely only impacts systems used for leading-edge chip production, Susquehanna analyst Mehdi Hosseini said in a note to clients Monday.

Huawei Ban.....

Last year, Trump escalated simmering tensions with China by going after one of its flagship companies Huawei. The Trump administration released “a rule that restricts government agencies from doing business with Huawei, the giant Chinese maker of telecommunications equipment and smartphones.”

Taiwan Semiconductor stopped taking new orders from Huawei. But to sweeten the pot for TSM stock, on the same day that the Commerce Department announced its new order, TSM disclosed “it is opening a new $12 billion advanced chip foundry in Arizona with support from the state and the U.S. federal government.”

Analysts Thoughts.....

Taiwan Semiconductor has received a consensus recommendation of "Buy" from the ten research firms that are currently covering the stock. One equities research analyst has rated the stock with a sell rating, two have issued a hold rating and seven have assigned a buy rating to the company.

Several equities analysts have recently commented on the company…..

  • JPMorgan Chase & Co. reissued a "buy" rating on shares of Taiwan Semiconductor Mfg. in a research note on Monday, July 27th.
  • Credit Suisse Group raised shares of Taiwan Semiconductor Mfg. from a "neutral" rating to an "outperform" rating in a research note on Monday, July 27th.
  • Macquarie raised shares of Taiwan Semiconductor Mfg. from a "neutral" rating to an "outperform" rating in a research note on Friday, July 24th.
  • Finally, Zacks Investment Research cut shares of Taiwan Semiconductor Mfg. from a "buy" rating to a "hold" rating in a research note on Wednesday, September 16th.

Summary.....

The stock currently trades for about 23.4 times price to sales, which is well worth the incredible growth performance the company can deliver. Keep in mind that Taiwan Semiconductor's operations are also yielding an impressive return on equity of 28.5%. The company's stock has gained more than 78% during the past year.

TSM has a quick ratio of 1.26, a current ratio of 1.40 and a debt-to-equity ratio of 0.06. Taiwan Semiconductor Mfg. has a 12-month low of $42.70 and a 12-month high of $86.79. The company has a market capitalization of $409.08 billion, a PE ratio of 27.39, and a price-to-earnings-growth ratio of 1.28 and a beta of 0.94. The firm's 50 day moving average is $79.72 and its 200-day moving average is $61.85.