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Texas Instruments: Cheaper Play on Chips?

10/06/2017 5:00 am EST


Bryan Perry

Editor, Cash Machine, Premium Income, Quick Income Trader, Instant Income Trader

Some of these stocks in the semiconductor sector have had torrid runs and trade at lofty levels that invite longer periods of consolidation to digest those big moves, notes growth and income expert Bryan Perry, editor of Cash Machine.

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For money managers looking to stay invested in the chip space, but interested in finding deeper value, one idea is to turn to some of the legacy chipmakers and chip-equipment makers that are trading at much lower P/E ratios and, at the same time, are hiking their dividends and increasing their stock repurchase plans.

One such stock that comes to mind is Texas Instruments (TXN). The company designs, manufactures and sells semiconductors to electronics designers and manufacturers worldwide, and its products are found in hundreds of commercial and consumer products primarily through the application of analog and embedded processing.

Most traders don’t think of TXN as a sexy enough stock to trade compared to something along the lines of NVIDIA (NVDA), the Cinderella chip stock of 2017.


What is compelling about Texas Instruments is that the company is breaking out of a multi-month trading base on news that the chipmaker's board raised the quarterly dividend by 24% and added a hefty share buyback authorization.

The company will raise its quarterly dividend to 62 cents per share from 50 cents. Texas Instruments's board also added $6 billion in share repurchase authority, in addition to the $44.6 billion in purchasing authority that remained at the end of June 2017.

This is mouthwatering news to institutional investors who are seeking stocks that offer yields at or near 3.0% and where the company itself is sitting on the bid, buying back its own shares, which reduces the number of outstanding shares and puts a net positive impact on earnings.

As the chart below shows, the news put a fresh fire under TXN's shares and it now has look of a stock that can easily trade 10-15% higher by the year’s end.


That kind of fresh breakout chart is hard to find in the broader tech sector, where it would appear that for many stocks “the easy money has already been made.” Not so for TXN.

Companies the size and quality of TXN that raise their dividends by 24% get global attention from the financial community. It is exactly what long-term pension money is looking for, namely, growth at a reasonable price coupled with a robust dividend and stock repurchase plan.

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