Top 3 Value Stocks from Joel Greenblatt’s Value Investors Club

1. Taiwan Semiconductor Manufacturing Company (TSM)

TSM, the world's largest foundry, is a major player in the semiconductor industry, holding a 70% market share in advanced chips. Here’s a closer look at its performance and prospects:

• Current Price: $192 per share
• 52-Week Range: $90 (low) - $212 (high)
• Market Cap: $1 trillion
• 5-Year Performance: Up 300%
• Year-to-Date Growth: 92%

Key Metrics:

• Net Income: $33 billion (last year)
• Free Cash Flow (FCF): $22.3 billion (last year)
• Dividend Yield: 1% (~$10 billion of FCF)
• Profit Margins: 40% (5-year average and last year)

TSM's robust growth stems largely from its dominance in the chip industry, supplying companies like NVIDIA and AMD. Its ability to achieve internal growth, without relying heavily on acquisitions, is a significant advantage. However, discrepancies between net income and free cash flow, likely due to heavy reinvestment, are worth noting.

Stock Analyzer Results:

• Revenue Growth Assumptions: 7%, 13%, 33%
• Profit Margins: 35%-41%
• PE Ratios: 16, 18, 20
• Estimated Price Range:

• • Low: $77
  • High: $260
  • Middle: $140

At its current price, TSM may require patience. However, its market position and growth potential make it a compelling candidate for long-term investors.

2. Marvell Technology (MRVL)

Marvell Technology is another semiconductor company making waves, particularly in the AI-driven data center space. Its stock is currently priced at $85 per share, near its all-time high of $94.

• Market Cap: $73 billion
• Enterprise Value: $78 billion
• 1-Year Free Cash Flow: $1.4 billion
• 5-Year Free Cash Flow Average: $800 million

Notable Highlights:

• Marvell has made significant acquisitions, evidenced by share dilution (e.g., from 668 million to 850 million shares outstanding).
• Approximately 70% of its revenue is tied to data centers, with custom chips developed for giants like Amazon, Microsoft, and Google.

Stock Analyzer Results:

• Revenue Growth Assumptions: 4%, 7%, 10%
• Profit Margins: 4.5%-6.5%
• PE Ratios: 13, 16, 19
• Estimated Price Range:

• • Low: $12
  • High: $40

Despite its growth potential, Marvell’s frequent share dilution and questions around sustainable demand for its products make it a riskier investment. The company is well-positioned in AI, but its current price may not provide enough margin of safety.

3. The Walt Disney Company (DIS)

Disney, a name synonymous with entertainment, offers a unique value proposition. Currently priced at $95 per share, Disney has faced challenges transitioning from traditional media to a direct-to-consumer model.

• Current Revenue: $90 billion (last 12 months)
• Profit Margins:

• • Last Year: 5.3%
  • Pre-COVID: 10%-15%

• Parks Revenue: $9 billion (expected to grow to $12 billion by 2027)

Key Strengths:

• Disney’s parks business alone accounts for $140-$180 billion in market cap value, meaning the rest of the company could be considered a “bonus” at today’s price.
• Its streaming services, including Disney+, Hulu, and ESPN, are gaining traction, with Disney+ achieving break-even status after years of investment.

Stock Analyzer Results:

• Revenue Growth Assumptions: 3%, 5%, 7%
• Profit Margins: 9%-15%
• PE Ratios: 18, 21, 24
• Estimated Price Range:

• • Low: $75
  • Middle: $130
  • High: $210

For long-term investors, Disney’s moat and diversified business model provide a solid case for ownership. At current prices, it offers a potential return of 133% based on middle assumptions, including dividends.

The Takeaway

These three stocks—TSM, Marvell, and Disney—showcase a range of investment opportunities in the semiconductor and entertainment sectors. Using tools like the Stock Analyzer, investors can input their assumptions and make informed decisions. Whether you're looking for growth, dividends, or a strong moat, these stocks provide a starting point for deeper analysis.

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