TEXAS INSTRUMENTS INC. $42 - Nasdaq symbol TXN

TEXAS INSTRUMENTS INC. $42 (Nasdaq symbol TXN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.1 billion; Market cap: $46.2 billion; Price-to-sales ratio: 4.0; Dividend yield: 2.9%; TSINetwork Rating: Average; www.ti.com) gets 65% of its revenue from analog chips, which convert inputs like touch, sound and pressure into electronic signals. Manufacturers use these chips in a variety of products, including cars, medical devices and appliances.

The company gets a further 20% of its revenue by making processor chips, which perform mathematical calculations. Many clients supply their own software for these chips. That lets Texas Instruments form long-term relationships with these users, as it helps them carry their software over when they upgrade.

The remaining 15% of revenue comes from other chips, handheld calculators and licensing. In the quarter ended December 31, 2013, the company’s earnings jumped 93.6%, to $511 million from $264 million a year earlier. Earnings per share rose 100.0%, to $0.46 from $0.23, on fewer shares outstanding. Texas Instruments recently quit making chips for mobile devices and closed plants as a result. Without closure-related costs, it earned $0.49 a share in the latest quarter.

Revenue rose just 1.6%, to $3.03 billion from $2.98 billion. Demand for analog and processor chips continued to improve, but lower sales of calculators and wireless chips offset most of these gains.

Now that the company has stopped making wireless chips, it is spending less on product development. In the latest quarter, research costs fell 18.6%, to $346 million (or 11.4% of revenue) from $425 million (or 14.3%) a year earlier.

Texas Instruments’balance sheet is strong: it ended 2013 with cash of $3.8 billion, or $3.54 a share, and its long-term debt of $4.2 billion is just 9% of its market cap. That will help the company with its plan to spend $1.7 billion over the next 15 years to expand its Asian operations.

The company will probably earn $2.11 a share in 2014, and the stock trades at 19.9 times that estimate. That’s a reasonable p/e ratio in light of its strong growth prospects. The $1.20 dividend yields 2.9%.

Texas Instruments is a buy.

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