Why Texas Instruments is a great stock in today’s market environment
Concerns about the economy influenced the attitude of consumers and investors. Many believe we will soon enter a recession (if we haven’t already), and some fear stagflation, a combination of high inflation and high unemployment, reminiscent of the 1970s.
However, even if the economy experiences stagflation, low-cost dividend stocks can do well in such an environment. One of these actions is Texas Instruments (TXN -3.33%).
The case of Texas Instruments
Texas Instruments produces analog and embedded chips. These semiconductors don’t get as much attention as high-end processors made by companies like Nvidia and AMD. Yet, digital chips can only represent zeros and ones. Analog chips can recognize continuous signals, which means digital semiconductors need analog chips to work. These processors function as a bridge between the perfectly defined digital world and the messy and complex domain of real-world data. This makes Texas Instruments products essential to the latest technological advancements.
This need for tokens is likely to increase, which should help the stock even if stagflation weighs on growth. Fortune Business Insights predicts a compound annual growth rate of 9% for the semiconductor industry through 2029. This means it will grow in size from $483 billion today to around $893 billion that year. .
In addition, a business volume that boasts about 80,000 products and 100,000 customers keeps the performance of this company solid. About 62% of its revenue came from the industrial and automotive sectors in 2021.
Besides, it also supports other business segments and 24% of its revenue came from personal electronics last year. A customer, widely regarded as Appleaccounted for 9% of its revenue in 2021 and similar percentages in previous years.
How Texas Instruments is holding up financially
Texas Instruments claims a substantial share of the chip market. In 2021, it generated $18.3 billion in revenue, a 27% year-over-year increase.
Yet the economic environment has affected the company. First-quarter revenue was $4.9 billion. At a rate of increase of 14% from levels a year ago, growth was robust but slower. Net income during this period rose 26% to $2.2 billion, the company reduced its cost of revenue during that period by 2%.
Still, the pain won’t end immediately as the company forecasts second-quarter revenue of between $4.2 billion and $4.8 billion. This modest forecast could mean lower revenue for some time, as the company reported revenue of $4.58 billion in the second quarter of 2021. The recent stock price action could also reflect the difficulties of its decline in 25% from its high of $202 per share in October. .
Nonetheless, investors should consider Texas Instruments’ massive growth since the 2008-09 financial crisis. During this period, the stock has generally risen in a sustained upward movement after bottoming out at just under $14 per share in March 2009. Given expected industry growth, the rises will likely resume at longer term.
Additionally, Texas Instruments also trades at around 17 times earnings. In comparison, Analog devicesone of its closest competitors, currently supports a price/earnings ratio (P/E) of 40. Moreover, as earnings increase, the P/E ratio will fall, a factor which could act as a catalyst. even in a less robust economic climate.
Additionally, the company’s dividend growth should make Texas Instruments an excellent source of passive income in most market environments. The payout has grown at a compound annual rate of 25% between 2004 and 2021. The annual dividend has grown to $4.60 per year, a cash yield of about 3% at current prices. This growth in payouts could help an investment pay off regardless of how prices move in the short term.
Consider the stock
Ultimately, investors would likely generate positive long-term returns on Texas Instruments stock, regardless of the behavior of the broader market. Indeed, the stock fell along with other semiconductor stocks. Also, the possibility of stagflation is not positive for stocks as a whole.
However, with positive long-term growth still expected, these slowdowns are likely temporary. As demand for semiconductors increases and Texas Instruments’ chips appear in more and more products, its low multiple and fast-growing dividend should attract investors regardless of the overall market.