At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and “initiating coverage at neutral.” Today, we’ll show you whether those bigwigs actually know what they’re talking about. To help, we’ve enlisted Motley Fool CAPS to track the long-term performance of Wall Street’s best and worst.
Who’s hot, who’s not — in semiconductor stocks
Today, though, we’re going to introduce you to an analyst that fits neither of those categories. Wading into the semiconductor sector Monday is an analyst heretofore unknown to most investors — one that, according to ratings tracker StreetInsider.com, has only just recently (as in December 2012) begun publishing its recommendations.
On Monday, this neither-best-nor-worst securities broker, Tigress Financial Partners, announced that it was initiating coverage of a series of three stocks in the semiconductor sector. Let’s take them one at a time, and see how much sense Tigress is making, as it urges investors to …
Sell Texas Instruments Incorporated (NASDAQ:TXN) …
Tigress starts investors off on a down note as it applies an “underperform” rating to shares of Texas Instruments Incorporated (NASDAQ:TXN), arguing that “key performance measures continue to decelerate, making Texas Instruments Incorporated (NASDAQ:TXN)’s current valuation unsustainable.”
On the one hand, Tigress has a point about the deterioration in TI’s business. Gross, operating, and net profit margins are down across the board at the Dallas-based chipmaker. On the other hand, though, I think TI still has a lot going for it as an investment. For example, capital spending at the company has been kept under tight control in recent years, even as the company has largely maintained (and even accelerated last year) strong free cash flow. Cash profits reached $2.9 billion last year, giving the stock a price-to-FCF ratio of about 13.
While that may not be a bargain price on a 9% grower like TI, the company’s robust 3.2% dividend helps to bridge the valuation gap. At today’s prices, I don’t see TI as horribly overpriced — more of a “hold” than an out-and-out “sell.”