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Top Picks 2019: Texas Instruments (TXN)

01/11/2019 5:00 am EST

Focus: TECHNOLOGY

Joe Duarte

Editor, Joe Duarte In the Money Options

Texas Instruments (TXN) is a leading producer of embedded and analog semiconductors and an excellent all-purpose stock for volatile markets; it is a fortress of solid fundamentals in a troubled high-tech sector, asserts Joe Duarte, growth stock expert and editor of In the Money Options.

And if 2019 is anything like the last quarter of 2018 long term investors are likely to be rewarded for their patience and their foresight when they own shares of this company.   

From a macro standpoint, the semiconductor space is forecast to slow over 2019 and perhaps 2020, in what is expected to be a cyclical correction after a multiyear expansion since 2015. 

It is also reasonable to assume that most technology stocks will be similarly affected by the general state of the sector given the interdependence of the sector especially the general dynamics of order flows and operational relationships.

So what sets this company apart from the crowd? Strong management, a wide book of system, its forward planning structure, obsessive attention to detail in its operations, factory operation, and a fountain of free cash flow (FCF), the money left over after expenses. 

Indeed, FCF is the central metric for this company which reported a 40% growth rate in FCF with a $5.9 billion cache over the trailing twelve-month period reported in Q3 2018. Specifically, FCF is a pool of cash for the company to distribute to its investors via dividends and stock buybacks.

The latter is especially important because the firm has an $18 billion buyback program in place, and recently increased its dividend by 24% ($3.08 per year — 3.26% yield), its 15th straight year of dividend growth.

Texas Instruments has a pristine balance sheet with $5.11 billion in cash on its balance sheet and $5.1 billion in debt, which is averaging a 2.77% coupon rate. The company continues to grow its revenues and is expected to remain earnings positive for the foreseeable future. 

Moreover, it’s concentrating its efforts in automotive and industrial semiconductors where the potential for robotics and artificial intelligence continues to expand and should continue to do for the extended term.

As a result, I believe the stock is the best positioned company in its branch of technology, with a strong book of business, sound management and a strong balance sheet. The bottom line is that when it’s all said and done, Texas Instruments should still be standing and poised to grow its business. Buy above $90. (For full disclosure, Joe Duarte owns shares of Texas Instruments as of this writing.)

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