Stock markets have performed strongly this year, with the S&P 500 soaring to new heights and the FTSE 100 not far off a fresh record. This is great news for the millions of people with Stocks and Shares ISAs.
Yet I still think there are promising opportunities about today, especially when adopting a multi-year outlook. Here’s a pair of stocks I’d buy right now if I had 10 grand sitting in my ISA account.
The world’s largest contract chipmaker
They say that Nvidia’s the picks and shovels play for the artificial intelligence (AI) revolution. That’s not surprising when the tech giant commands around an 80% share of the AI chip market.
Yet it’s Taiwan Semiconductor Manufacturing (NYSE: TSM) that’s actually making most of those chips. And not just for Nvidia — nearly every major AI innovator around the world relies on TSMC for its advanced semiconductor manufacturing.
The company has many competitive advantages, but perhaps the biggest is its pure-play foundry business model. This means that despite making trillions of chips, it’s never designed a single one. Rule number one at TSMC: never compete with your customers.
On Thursday (17 October), the chipmaker reported its third-quarter net profit surged 54% year on year to $10.1bn. The net profit margin was a jaw-dropping 42.8%!
Looking ahead, management says TSMC will achieve compound annual revenue growth of 15-20% over the next “several years”. It predicts AI demand will continue for many more years. That’s great news when you’re making 99% of the world’s AI accelerators!
There are risks here though, including a potential pullback in AI spending among customers at some point. Also, tensions between China and Taiwan continue to bubble away in the background.
However, the stock’s forward price-to-earnings (P/E) multiple is around 25. I think that’s decent value for a company that’s at the epicentre of the technological revolution.
Back in March, I wrote that I think the firm will lead the AI boom because there wouldn’t be one without it. I still believe that, and despite the stock doubling year to date, I’d buy it to hold for the long term.
Passive income bonanza
The second stock is Legal & General (LSE: LGEN). Admittedly, the insurance and pensions firm isn’t as exciting as one benefitting from AI. But the FTSE 100 share’s carrying a lip-smacking 8.9% dividend yield.
The payout’s expected to rise from 20.3p per share last year to 21.8p next year. That gives the stock a mighty forward yield of 9.5%. So a £5,000 investment could generate close to £500 a year in dividends.
Of course, payouts aren’t certain and L&G, with £1.13trn of assets under management, is susceptible to sudden market chaos. We saw this two years ago when the pensions market was rocked by a massive sell-off in UK government bonds following the mini-budget debacle.
As things stand though, the firm expects full-year core operating profit to grow by mid-single digits. So it’s steady, which is what I want from a mature dividend-paying company.
Overall, I’m reassured by L&G’s solid balance sheet and excellent dividend track record. I think this remains one of the best passive income stocks around. I’ll be buying more shares before 2025.
