5 Compelling Reasons to Consider Texas Instruments as a Long-Term Investment

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In today’s dynamic investment landscape, finding stocks that warrant a long-term hold can be a challenging endeavor. However, Texas Instruments (NASDAQ: TXN) is one such gem that meets all the criteria of a stellar buy-and-hold investment. Let’s explore why this venerable technology company is poised to be a forever stock for astute investors.

Texas Instruments: A Blue-Chip Buy-and-Hold Candidate

Despite the recent 25% dip in Texas Instruments‘ stock price from its pandemic peak, it’s essential to recognize that this is actually good news for investors. Texas Instruments embodies the characteristics of a buy-and-hold-forever stock – a blue-chip name that offers dividends, a reliable cash flow, and a management team with a long-term vision.

Given that Texas Instruments checks all these boxes, there’s strong potential for the share price to rebound. Moreover, there are indications that the market might be oversold and due for a resurgence.

A Leadership Team with Vision

One of the key factors that make Texas Instruments a compelling long-term investment is its entrenched and visionary management. Although there’s been a recent change in the CEO position, it’s worth noting that the new CEO has been with the company since 1999, gradually climbing the ranks. The transition was seamless and well-communicated, ensuring continuity in the company’s strategic direction.

A glance at the executive team reveals that even the shortest-tenured executive has over a decade of experience with Texas Instruments. The company’s strategy revolves around responsible growth and long-term free cash flow expansion. Notably, Texas Instruments has maintained annual free cash flow growth of over 10% since 2004, consistently paid dividends, and executed share repurchases. This is vividly reflected in the stock’s performance, which has grown tenfold during this period.

Building a Robust Moat

Texas Instruments doesn’t rely on a single customer, channel, or product for its success. Instead, its wide moat is a result of diverse offerings spanning a wide range of end markets. With a product portfolio of over 80,000 items and a customer base exceeding 100,000 clients, each utilizing multiple Texas Instrument products in their finished goods, the company has an extensive reach and deep penetration into the supply chain.

Furthermore, Texas Instruments’ supply chain strength contributes to its competitive advantage. The company follows an IDM-style semiconductor foundry model, sharing space with other manufacturers globally. Domestically, it operates four semiconductor wafer fabrication facilities and manufacturing plants, with ongoing expansion efforts. This strategy results in cost-efficiency and faster time-to-market for its end markets.

A Value Opportunity in Challenging Times

While Texas Instruments’ Q2 results demonstrated year-over-year declines in revenue and earnings, they surpassed market expectations. Analysts expressed concerns about free cash flow growth and the impact of a soft business environment. Nevertheless, they anticipate a rebound in demand in the long term, maintaining the stock’s stable outlook.

For Q3, results are expected to remain relatively flat sequentially and exhibit year-over-year decreases. However, earnings and free cash flow are anticipated to be sufficient to support the company’s capital return strategy. Texas Instruments allocates approximately 57% of its earnings to dividends, with the remaining cash flow dedicated to CAPEX and share repurchases. With a yield approaching 3.4% and shares nearing multi-year lows, the outlook for the next year includes high-single-digit revenue growth and margin expansion, promising potential for another robust distribution increase.

Strong Institutional Support

Texas Instruments enjoys the confidence of both analysts and institutions. While there have been a few adjustments to price targets and ratings, the consensus remains positive. The stock is currently rated as a ‘Hold’ with a target approximately 20% higher than the recent price.

Institutional investors have demonstrated consistent buying activity throughout 2023, reinforcing the stock’s position. Assuming this trend continues, it should provide a firm support level in the stock’s trading action.

Technical Analysis: Awaiting Critical Support

The recent price action of Texas Instruments suggests a decline, potentially reaching a critical support level at a one-year low. This support level could trigger a rebound, with a catalyst on the horizon. The company is set to report its Q3 earnings at the end of October, and the bar has been set low. Analysts have been adjusting their targets, creating an opportunity for potential outperformance.

Texas Instruments has a history of surpassing consensus expectations, and this time may be no different. In this scenario, the stock would likely find support around or near the $149 mark, where it may consolidate before the next move.

Notably, the technical indicators, currently in oversold territory, align with this scenario. However, a failure to hold the critical support could pose a risk of the stock moving towards a lower valuation.

A Final Word

As investors seek stability and growth in their portfolios, Texas Instruments emerges as a compelling choice. With robust management, a diverse product offering, and a commitment to long-term growth, it encapsulates the qualities of a buy-and-hold-forever stock. Although market challenges persist, Texas Instruments remains well-positioned to navigate them successfully and deliver value to long-term investors. Before making any investment decisions, it’s prudent to stay updated on the company’s performance and market dynamics, especially with the upcoming earnings report.