Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Texas Instruments Incorporated (TXN) Bets It All on Internet of Things

Intel Corporation (NASDAQ:INTC) is usually seen as the closest comparable to TI. Its margins are strong, about 20%, but well short of those held by ARM and Qualcomm, in part due to the cost of owning its own fabrication plants. The company has about $13 billion in debt, which would nearly wipe out its cash balances if it all came due, but for a manufacturing company that’s a very small debt load. What makes it attractive is the $15 billion in cash flow it delivers to shareholders annually. Its 22 cent dividend also delivers a 3.96% yield, but investors should know this is primarily a yield stock – it’s up only 5% in the last five years.

Now compare all this to TI’s numbers. Its annual profit margins have been heading down for a few years now, toward the low double-digits, although the new quarter’s results mask that, with the one-time gain giving it a margin north of 25%. The company has $1 in debt for each $4 in equity, which is more in line with what you’d expect for a manufacturing oriented company, and it delivers $3.5 billion in cash flow annually to sustain its $43 billion market cap. Its 28 cent dividend produces a 2.86% yield at current prices, but the stock has managed a gain of 46% over the last year, which is the best of those companies I’ve examined.

One Fool’s take

All the stocks examined here have dividend yields, which should lead to investments by patient investors only.

What you think of TI really depends on what you think of their strategy, whether you believe in the market for analog and embedded chips, as opposed to mobile chips. That’s where the company has placed its bets.

Personally, I think that’s a good bet, but so do many other investors. Otherwise the stock would not have had such huge gains while it was killing its mobile business. Right now, with a P/E near 22, TI is more than fully priced, and I think the nearly 5% gain after earnings is speculative. I might be interested in it on a pullback to $35, but in the current market I may have to wait for that.

As to the rest, Qualcomm remains the best positioned for organic growth, ARM Holdings has had a great recent run (which I took advantage of) and Intel Corporation (NASDAQ:INTC) continues to do nothing – I sold my own holdings in it last year, and I’m glad I did.

Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel and Qualcomm.

The article TI Bets It All on Internet of Things originally appeared on and is written by Dana Blankenhorn.

Dana is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.