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 Fool.com 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.
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