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I'm Calling the Top On Texas Instruments

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I'm calling the top here on Texas Instruments $TXN. There's no way that these shares make sense at twenty-three times earnings. And it's less believable that the stock is at a 52-week high after such a disappointing quarter. While investors are applauding the company's 33% dividend hike, I see this as sheer desperation and a bid for time.

 

The company has no leverage. And I think management knows this, which is why it wants to pacify investors while adding support to the stock price. At $37, the stock looks expensive both in terms of its earnings and free cash flow valuation. The forward P/E is at 16, which is higher than both Qualcomm (QCOM) and Broadcom (BRCM), which trades at 13 and 11 respectively. 

 

As rivals are ramping up their product portfolios and positioning themselves for a market recovery, Texas Instruments must figure out a way to secure more business and reverse its revenue slide. While the company still has a solid position in the market, I worry that the company may not have enough ammo to undo the trend of fallen orders and high inventories.

 

I don't see where there is further value here at this level. The stock may be stuck in quicksand for the next several quarters. Investors might want to look at a company such as NVIDIA (NVDA). Not only does it seem to present better value than Texas Instruments, but it also comes with less risk – trading at a P/E ratio 3 points lower. 

 

Disclosure: At the time of publication, Richard held no positions in any of the companies mentioned.

 

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