The Motley Fool: Chipping away for the long term with NXP Semiconductors
Sun., Aug. 21, 2016
NXP Semiconductors (NASDAQ: NXPI) is the world’s largest automotive chipmaker, and it also supplies the smartphone industry and others with chips.
The company is a long-term play on the interconnectedness of everything, often referred to as “the Internet of Things,” or IoT. NXP’s offerings help devices communicate with one another, such as a smartphone communicating payment information to a point-of-sale device via near-field communication chips.
This technology isn’t going to blossom overnight, but rather over the course of five to 15 years. It’s been estimated that the global IoT market could be worth $14.4 trillion by 2022.
Also working in NXP’s favor is its 2015 merger with Freescale Semiconductor, which created the fourth-largest semiconductor company in the world, if you exclude memory developers. It cemented NXP as the market leader in general-purpose microcontroller products, mobile payment-based semiconductor solutions and automotive semiconductor solutions.
On top of expected cost synergies tied to the merger, the deal is also expected to give NXP much-improved leverage on pricing with its customers, which should ultimately help improve its profit margins.
With NXP’s recent price-to-earnings (P/E) ratio well below its five-year average, it appears to be a promising long-term investment. (The Motley Fool owns shares of and has recommended NXP Semiconductors.)
Ask the Fool
Q: How much personal liability insurance is it smart to buy? - H.M., Leyden, Wisconsin
A: It all depends on how much money you have to lose if you’re sued. Add up the value of your home, your belongings and your financial assets. Tack on some more for legal costs. (Insurance companies will sometimes provide a lawyer.) The goal is to protect yourself so that a lawsuit won’t wipe you out or cause major financial difficulties.
If your value total is rather hefty, look into getting an “umbrella” personal liability policy from your insurance company or another. Umbrella policies generally offer much more liability coverage ($1 million or more) at much lower premiums than individual policies such as homeowners, renters and automobile insurance. If you have a lot to lose, you can increase your protection with an umbrella policy. Learn more at sites such as investopedia.com/personal-finance/insurance and iii.org.
Q: Can I buy fewer than 100 shares of a company’s stock? - M.B., Northlakes, North Carolina
A: Yes. You can buy just one share, but if it costs $20 and you’re paying a $10 trading commission, you’re down 50 percent immediately. It’s better to try not to pay more than 1 or 2 percent of your trade’s value in commissions - so with a $10 commission, aim to spend (or reap) $500 or more.
You might, alternatively, buy stock directly from a company, such as through a dividend reinvestment plan (a “Drip”), where you can get fractions of shares at a time. For example, a $50 contribution would buy you half a share of a $100 stock. Learn more about Drips at fool.com/school/drips.htm and directinvesting.com, and in “Dividend Stocks for Dummies” by Lawrence Carrel (For Dummies, $25).
My Dumbest Investment
My dumbest investment was buying stock in the electric-car maker Tesla near when it had its IPO for around $17 or $18 per share - and then selling those shares when they hit $24. As you know, shares were recently trading for around $230 apiece. - R.R., online
The Fool responds: You lost out on having a “12-bagger” in your portfolio - a stock that has increased in value twelvefold. It’s not necessarily the dumb mistake that you think it is, though. The IPO (initial public offering) - when a company first issues shares of itself to trade on the open market - did rather well, popping by more than 40 percent on its first day and then generally growing in value, though not in a straight line.
Many IPOs are not that successful, and studies have shown that most tend to underperform similar counterparts during the first five years. It’s usually better to wait for newly IPOed companies to have a few years of public performance behind them before investing, giving the initial excitement a chance to die down. Remember, too, that few of us can ever buy IPO shares at their lower initial price - those generally go to the well-connected.
Tesla’s future is far from certain at this point, keeping many investors away. It’s off to a strong start with its well-received cars, but other carmakers are coming out with more electric vehicles, too.
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