Taiwan Semiconductor stock is a great example of the pumps that I’m currently seeing on Wall Street. You need to be aware of what these corporations and analysts are doing so that you don’t get blindsided by a sudden sell-off right after you buy the stock.
It began on August 26, 2019, when suddenly some large players began buying call options in Taiwan Semiconductor stock. Bullish option flow was detected in Taiwan Semi with 2,183 calls trading, 1.6x expected, and implied vol increasing over 1 point to 29.72%. Sep-19 42 calls and Sep-19 40 calls were the most active options, with total volume in those strikes near 1,900 contracts.
On September 4, 2019, TSMC suddenly gets upgraded to Overweight from Equal Weight at Morgan Stanley.
We can guess that Morgan Stanley was responsible for the call buying on August 26, 2019.
Next on September 6, 2019, magically a pump article is published in DigiTimes by Cage Chao that said TSMC has seen a pull-in of chip orders demanding advanced 7nm node manufacturing, with order visibility stretching through the first half of 2020. The article supposedly cites sources in Taiwan but my guess is that Morgan Stanley had something to do with DigiTimes running the article. You can read the article here.
Next on September 16, 2019, unusually heavy call flow was detected in Taiwan Semiconductor stock.
Like clockwork, DigiTimes magically runs a pump article that Taiwan Semi is extending the lead time for production of 7nm chips to nearly six months from the previous two months because of strong demand. You can read the article here.
What’s the odds of large and unusual call volume being detected just days before a media pump, and not just once but twice!
Somebody or some group knew that DigiTimes would be running these articles in advance of the public. It would not surprise me if Morgan Stanley or some other firm actually wrote the article for DigiTimes as a ghost-writer. DigiTimes would happily accept the article for publication because their hungry for articles and the firm who ghost-wrote the article would get to pump their call options position.
Next on September 30, 2019, Goldman Sachs analyst Bruce Lu added TSMC to his firm’s Conviction List while reiterating a Buy rating on the shares. The analyst had a $55 price target for the stock, which represented 21% upside at the time. Following a “re-examination of industry capacity builds” and order revisions, the analyst thought he underestimated the positive impacts on TSMC arising from trade uncertainty.
Next, on Saturday, October 5, 2019, Barron’s runs a story pumping TSM stock by saying Apple, AMD, and Nvidia can’t do without TSMC. The article said that while it has been a tough year for tech investors there still is a good way to play innovation through shares of TSMC (TSM), Tae Kim writes. TSMC’s client list includes the world’s top technology companies, such as Apple (AAPL), Qualcomm (QCOM), Huawei Technologies, Nvidia (NVDA), and Advanced Micro Devices (AMD), the author notes, adding that they all rely on TSMC to make the most demanding chips used in smartphones, servers, artificial intelligence applications, and networking devices. You can read the article here.
What have the results of this pump campaign done to Taiwan Semiconductor stock?
On its surface, nothing seems too bad about the pump of Taiwan Semiconductor stock. However, for the unsuspecting retail investor that doesn’t want to miss the train leaving the station, they will lose money chasing this stock.
They have pushed the stock so high that it trades at a market cap of $231 billion but the company only did $32.6 billion in sales last year. That’s a lofty P/S ratio of more than 7. In other words, it would take the company 7 years at its current sales level (without a recession), to make the money equal to its current market cap. Even with revenue growth of 15% per year it would take a little more than 6 years for the company to make $231 billion.
This collusion between media corporations and Wall Street destroys value as retail traders chase the pump higher. Then, coming soon to a theater near you, they will dump the stock and book profits leaving retail traders that chased as the bag holders. Cha-ching! Rinse and repeat with another stock they can pump to retail traders and around and around we go.
Taiwan Semiconductor has some positive things going for it no doubt. But the best pumps are the ones that are based on half-truths because they are more believable that way and they get the animal-spirits going. Is Taiwan Semiconductor a good stock to buy? Sure, once it does a pullback to where the P/S ratio drops to 3 or below.
Be very skeptical of corporations and corporate media news outlets in this market. We have seen how they’ve attacked our President. If they would do that to the duly elected President of the U.S., they won’t blink an eye about running a pump and dump on a stock you are in.
We truly live in corrupt times so be skeptical about everything. Question more and trade accordingly.