Recent Buy – TXN

For the past few months, I’ve mentioned wanting to increase my investment in the technology sector.  Well, today I did just that.  It wasn’t a big splash, but it adds another terrific company to the Portfolio, and adds some additional dividends to the annual dividend income stream.

Today, I initiated a position in Texas Instruments, Inc. (TXN).  TXN designs, manufactures, markets and sells semiconductors to various designers and manufacturers around the world.  The company operates in two segments: Analog and Embedded Processing.  Analog includes logic, power products, converters, amplifiers, sensors, etc.  Embedded Processing includes microcontrollers and digital signal processors (DSPs).

My purchase came just a day after the market was apparently disappointed with TXN’s Q4 earnings report.  It wasn’t that the earnings were poor, but TXN’s outlook was just not good enough to live up to the heightened expectations that came with a strong run up in the stock price in recent months.

TXN had been on a strong upward trajectory since last September, after hovering around the $80 mark for most of the first 8 months of 2017.  Recently, TXN was at a 52-week high, at slightly over $120.

Here are my purchase details…

 

TXN

On 1/25/18, I purchased 25 shares at $110.40/sh, for a total of $2,760.00.

This purchase results in an additional $62 in annual forward dividend income, bringing the annual forward dividend total to just over $7,463.

TXN enters the Portfolio as the smallest position by a good margin.  It also joins SWKS as another semiconductor company in the Portfolio.

I can easily see that TXN may be overvalued at my purchase level, as the price had risen about 50% in the last 4-5 months, and it trades at a higher than normal P/E ratio compared to the past few years.  However, I decided to establish a small position (a little less than 1% of the portfolio), as I’m certainly more engaged following a stock I own compared to one I don’t, even if it’s a small position.

On the plus side, over the past 5 years, management has steadily increased both pre-tax profit margin and return on equity percentages, which I like.  In addition, TXN has been aggressively increasing the dividend, especially over the past couple of years.  The payout ratio is currently a bit over 50%, so there’s room for more healthy increases, especially if TXN can keep improving its cash flow.

Should TXN continue to fall, I’ll strongly consider averaging down.  I could see making two or three similarly-sized purchases before concluding that I had a full position.

Over the next 5 years, I’m estimating that TXN may only grow annual sales at 4%, but can grow annual earnings at about a 10%-11% clip.  At my purchase price, TXN has a 2.25% yield.  This is a tad lower than my portfolio yield, but I expect TXN to offer above-average growth, and correspondingly above-average price appreciation.

 

Any thoughts on my TXN purchase price?  Would you have held out for a lower entry point?  Are there other tech names you would prefer at this time?  Please share your thoughts in the Comments!

10 thoughts on “Recent Buy – TXN

  1. ED, I have looked at TXN many times over the years and have never pulled the trigger. Mostly due to low yield and high valuation every time I reviewed it as a possibility. My mistake, it has been a great performer. and I am sure it will continue to be. Tom

    1. Hi, Tom. I was finding a good entry point difficult to come by myself. I decided to take the plunge with the pullback after earnings. Who knows how good of an entry point it will turn out to be, but it shouldn’t matter too much as more time goes by. The position is small enough that there’s room to average down if TXN goes lower without it becoming too large of a portfolio position. Thanks for dropping by and commenting!

  2. Definitely something to consider … especially given the reason drop. In the last 10 years it has beaten S&P 500. I see it as a growth stock with a dividend component .. hence the low yield.

    1. I like the growth prospects for TXN. I don’t mind the dividend yield here either at 2.25%, but then again my portfolio average isn’t too high to begin with. I’m skewed a bit more towards growth than income, so I like the way TXN fits into my portfolio from that perspective. Thanks for sharing your thoughts, DG!

  3. I really like the idea of establishing a small position so that you will be forced to track the stock. I frequently spend a lot of time evaluating and tracking a stock, and then I forget it all when I move on to another stock.

    TXN is on my watch list. I have been waiting for the stock to decline. I am trying to be disciplined in 2018 about only buying when I see immediate value in the current stock price, so I may be on the sidelines with TXN for awhile.

    In the Tech space, there are currently no stocks that look fairly valued. Long term I am following Microsoft and IBM, for future purchases if values drop. IBM is currently fairly valued according to Morningstar, and the stock has largely avoided the run-up enjoyed by other tech stocks. Dividend yield is currently about 3.63%. Some pundits say it is “old tech” and has no future, but the yield is strong and the company fundamentals suggest it will be around for awhile. I’m looking into establishing a position later this year, if it drops to $160 or so.

    These older tech stocks probably go against your growth philosophy but their current yield is pretty sweet.

    1. I’d been watching TXN for months. It just kept moving up along with many other tech names. However, I like the outlook for TXN compared to other tech companies, so if I was going to add to my investment in the sector, I figured it should be a company at/near the top of my list. Starting with a smaller position relative to my other holdings, and being able to average down without it becoming an oversized position, made it easier to commit some cash to TXN.
      If I recall, IBM had a good report this quarter, no? I think they got sales going in a positive direction… due to cloud software, I think. Perhaps the turnaround is in full swing.

  4. I’m actually not that familiar with TXN but it seems like you’ve fully considered the company before making the purchase. I hope it works out and averaging down on the stock is not a bad approach if it falls in price.

    1. Thanks for the comment, DP. Thanks to my job, I’m familiar with quite of few of TI’s products. I was in the same space last year with my holding in Linear Tech (LLTC), and I sold after they were purchased by Analog Devices (ADI).
      Anyway, I’m happy to have a position in TXN, and I hope it works out, too. Short-term, the stock could pull back further, but over the long term I expect TXN to deliver quality returns.

  5. This is one of my core holdings, and I don’t have many tech holdings. I think it’s a great choice. Not a flashy dividend yield, but a strong company.

    1. I think I may have commented on liking TXN in your portfolio, DD. After watching it for so long, I decided to initiate some sort of position. If nothing else, I’ll watch it more closely now that it’s in my Portfolio.
      They might need to grow some to catch up with their stock price, but long-term I like TXN a great deal.

Leave a Reply

Your email address will not be published. Required fields are marked *