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Time for Technology
12/08/2006 12:00 am EST
Recently, investment pro John Dessauer began adding technology stocks back to his portfolio. In his latest issue, he recommends that subscribers take a fresh look at a tech stalwart that is currently suffering from Wall Street's short-term point of view.
"The U.S. has fallen behind in technology and must now catch up fast. The reason NASDAQ is still 50% below its 2000 peak is skepticism on Wall Street. This creates a tremendous opportunity for us.
"My new technology stock is Texas Instruments (TXN NYSE). This stock has
risen from $25 to $30 in the last two years, but the company's earnings have risen much faster, from $1.05 in 2004 to $1.34 in 2005, to $1.70 estimated for this year and $2 in 2007 or 2008. Texas Instruments is very strong financially. The company has no long-term debt, and the board authorized a $5 billion stock buyback. Wireless products account for 40% of Texas Instrument's semiconductor revenue. (Nokia is the company's chief wireless customer.)
"On December 11, management will provide a mid-quarter update. Analysts are expecting a grim outlook. They worry because management said (in the third quarter conference call) that sales of 3-G wireless are disappointing. European sales were especially slow. (This is consistent with lower consumer confidence in Europe.) However, I see the current 3-G sales softness as temporary. In Japan, 3-G sales were sluggish in the third quarter because Japan introduced number portability in October. From here on, 3-G sales in Japan should improve.
"Texas Instruments is a technology leader in many areas, like semiconductors for wireless and advanced TV sets. The company's earnings have made a full recovery from the 2001 technology bust. From here on, I expect we will see continued growth in Texas Instrument's sales and profits for many years. The time to buy Texas Instruments is when Wall Street has short-term concerns, as they do now. If the December 11 guidance is better than expected, the stock will rise. If not, the stock will probably stay put or sink.
"However, because so many analysts expect dismal guidance, I believe that any possible bad news is already reflected in the stock price. A fall to $26 or $27 is possible, so I would buy some shares now, and buy more if the stock falls 10%. Any short-term downside risk pales against the long-term potential for significant gains in the shares. Current analyst estimates for 2007 range from $1.80 to $2.00 a share. By 2008, I think Texas Instruments will earn well over $2 a share. That will lift the stock price to at least $40 in the next 12 months."
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