Texas Instruments is on a roll
Texas Instruments (NYSE: TXN) recently raised its quarterly projections for the quarter in progress – for the third time.
It pointed to increased orders in the industrial sector as a driver of its strong business. Its book-to-bill ratio has recently been above 1.0, meaning that it’s getting orders faster than it can fill and bill for them.
Moreover, the chip slinger is expanding its internal manufacturing capacity while chief competitors Broadcom and Qualcomm all depend on the same group of outsourcing plants. This gives Texas Instruments a strong competitive edge.
Texas Instruments is reshaping its business to get out of the commoditized, low-margin market for mobile phone radio chips. Its new focus is on high-end mobile processors, where its current OMAP3 series mainly competes against the Qualcomm SnapDragon and scores of other designs based on architectures from ARM Holdings. The upcoming OMAP4 chips should find their way into plenty of smartphones and tablets, thus keeping the momentum alive.
Several analysts believe Texas Instruments is undervalued at today’s prices, and its recent minuscule forward-looking P/E ratio of around 10 supports that. (Its five-year average P/E is 18.)
Ask the Fool
Q: Is there any upside to inflation? – S.K., Ocala, Fla.
A: There is indeed – if, for example, you have a fixed-rate mortgage. Imagine locking in a 30-year, 5-percent loan with $1,000-a-month payments. As inflation makes the dollar worth less over time, your payment will essentially be lower and lower. You might be earning $50,000 now, and paying that $1,000 monthly, but in 15 years, if you’re earning $80,000, that $1,000 payment will represent a much smaller chunk of your wealth.
Q: If I invest in a penny stock, I can buy more shares of it than more expensive stocks. So when the shares go up, I’ll make more money, right? – E.M., Salisbury, Md.
A: No, no, no. Don’t assume that penny stocks are a bargain because you can buy so many for so little. Remember that a $1 stock and a $60 one can both go up (or down) by the same percentage in one day. With a 5 percent rise, the $1 stock will increase in value by 5 cents, to $1.05. For the $60 stock, it’s a $3 jump, to $63.
Penny stocks (those trading for $5 or less per share) are often more likely to eventually plummet than to skyrocket. They’re risky, often hyped and manipulated by those with dastardly designs.
Steer clear and look instead to healthy, growing companies you understand. In the last decade, you could have quadrupled your money in shares of Caterpillar and more than doubled your money in McDonald’s. You’d have lost 60 percent of your money on Xerox stock, but even that beats many penny stocks, which might have left you with nothing. It’s fun to own 5,000 shares of something, but not when it crashes.
My dumbest investment
Back in July 2008, when the market was tanking, I sold some of my stocks. I didn’t have the patience to see what would happen. When I saw them bounce, I got nervous and re-bought the same stocks. The market then dropped even more, along with my stocks. Sad thing is, I eventually sold those stocks at a loss.
Fortunately, I purchased other stocks, some recommended by the Fool, and am happy I unloaded the ones I did. All in all, it was an expensive lesson about learning to wait, but one I’m glad I got out of the way. The experience helped me remain calm throughout the more recent turmoil. One more thing: I don’t look back to see how the stocks I sold are doing. I’m just moving forward. – M.H., Maryville, Tenn.
The Fool responds: That’s smart, to just look forward. Sometimes investors get too caught up with thinking about how much they’ve made or lost. What really matters to your portfolio today is how you expect your stocks to perform in the future.