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Everyone is selling, the charts are red, but should you panic? Not at all. As a long term investor, my favorite time of the economic cycle is when great stocks sell at an unjustified discount. Today I want to bring to light the market’s darling – Texas Instruments Incorporated. Looking at its size, financial health and track record, I believe there’s an opportunity with Texas Instruments during these volatile times.
Texas Instruments Incorporated designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. Started in 1930, and run by CEO Richard Templeton, the company provides employment to 29.89k people and with the market cap of US$107b, it falls under the large-cap stocks category. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you’re heading to the bottom of the cycle.
Texas Instruments currently has US$5.8b debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Texas Instruments generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 46.09x, which is well-above the minimum requirement of 3x. Moreover, its operating cash flows amply covers its total debt by 124%, above the safe minimum of 20%. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning TXN’s financial strength will continue to let it thrive in a fickle market.
TXN’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 16%, overtaking the market growth rate of 13%. It has also returned an ROE of 64% recently, above the industry return of 14%. Characteristics I value in a long term investment are proven in Texas Instruments, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:Texas Instruments makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with Texas Instruments? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
- Future Outlook: What are well-informed industry analysts predicting for TXN’s future growth? Take a look at our free research report of analyst consensus for TXN’s outlook.
- Valuation: What is TXN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether TXN is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.