On Monday, we started exploring the possibilities that the Internet of Everything holds for players in the technology industry. We also examined how options traders can profit from the options of the companies trailblazing this new frontier. We recommended Skyworks Solutions call options here on Monday and options of Nuance Communications here yesterday.
We continue with our focus on stocks in the Internet of Everything landscape as we explore possibilities in Texas Instruments Incorporated (NASDAQ:TXN). Texas Instruments Inc., with a market cap of $51.87B designs and makes semiconductors that the Company sells to electronics designers and manufacturers all over the world. The Company has four segments: Analog, Embedded Processing, Wireless and Other. Its integrated circuits are used to accomplish many different things, such as converting and amplifying signals, interfacing with other devices, managing and distributing power, processing data, canceling noise and improving signal resolution.
Without much ado, Texas Instruments operates in practically the same market environment as Skyworks Solution with which we started this series on the Internet of Everything.
Link to Internet of Everything
Texas Instruments makes semiconductors for a wide range of devices across a wide range of brands. The company makes semiconductors for simple devices such as the calculator and for complex devices such as missile-guidance systems. After the acquisition of National Semiconductor (with its portfolio of 12,000 analog patents in 2011), Texas Instruments held the number 1 position in the analog side of the semiconductor industry. In fact, in 2013 Texas Instruments was ranked as the number 7 sales leader in the global semiconductor industry.
Texas Instrument’s growing relevance in the semiconductor industry will stand the company in good stead as the applications of the Internet of Everything enter new frontiers. The embedded processing segment holds huge potential for Texas Instruments as the network of interconnected devices grow larger.
Surges in Recent Times
The stock chart above shows how shares of Texas Instruments have surged in the last one year. You can observe that the stock has increased its share price by more than 42% from $33.70 to the current $48.12 share price. You will also observe that the stock is trading at a 4% discount to its 52-Week high. Hence, we can take the discounted share price and the RSI of 68.12 to conclude that the company has upside potential ahead.
Another Reason to be Optimistic about Texas Instruments
One important reason to be optimistic about Texas Instruments is its commitment to returning all free cash flow (minus debts, plus proceeds of employee stock options) to its investors through dividends and stock repurchases. I strongly believe that investors will continue to push the share price of this company higher inasmuch as it maintains its market dominance and reward shareholders.
The second reason for optimism is the company’s little fundamental risk as reiterated by John Pitzer of Credit Suisse. He opines that Texas Instruments “is a very liquid stock with little fundamental risk, and the management has been very willing to give excess cash back to shareholders in the form of dividend and buybacks… That’s kind of a hard combination to dislike.”
How to Trade TXN Options
Based on the foregoing, it is hard to go contrarian on Texas Instruments; hence, I am staying in the bullish side of the fence. Texas Instruments lacks the momentum for speedy gains in the share price; nonetheless, a $50 share price is realistic in the next 6 months. I recommend the TXN Jan 2015 50.000 call (TXN150117C00050000) at the current $1.90 asking price.
— Daily Option Alerts