Looking for a buy-in price:
I've watched TXN since they exited memory chips, but never invested in it, because either (1) I saw better buys when TXN was in buy-range, or (2) it was overvalued.
Normally, I use this formula: buyprice = forward 12M EPS times expected Longterm EPS growth. At that price, the stock is at a PEG of 1. I've found, that if I can buy quality companies at that price, then over the next 1-3 years I get stock increase from both EPS increase and PE expansion, for an excellent return.
EPS growth: 5Y historical growth rate is 22%. Expected LT future growth rate (longterm, not in 2001) is also 22%. I think this is a reasonable number to use now that TI has migrated out of commodity chips. In spite of recent events, telecom-related chips are THE growth area for the next 10 years (again, this does not apply to 2001). I held Intel from June 1998 to January 2000. Since then, I have been completely out of the chip/chip-equip sectors, except for buying QCOM last year in the 60s. I will not be buying Intel back, even at these prices. DSPs will grow faster than CPUs for PCs. Intel is trying very hard to transition into higher-growth non-commodity chip sectors. Maybe they'll make it, maybe not. TI has already made that transition.
forward 12M EPS: This seems to be a moving target. 3 months ago, TI was supposed to earn 1.50 in 2001. A few days ago, they were supposed to make 1.00. Now? Maybe 0.80. But I don't think it's fair to use 2001 EPS in my calculation, because these will be trough earnings in a cyclical down year. They are below the LT trend-line. So, I'll use an average of 2000 and expected 2002 earnings: (1.22 + 1.36)/2 = 1.29.
Then: 1.29 X 22 = 28 = my buy-price.
In addition to the above, I also want to see the stock give back the entire 1999-2000 tech bubble. I don't think this tech downturn is going to be over till almost all the big cap techs have done this. Mid-to-high 20s for TXN meets this target.
In addition, I want to see sentiment really, really bad. I want to see all the momentum investors out of the stock, all the analysts bearish, every article I've read in the last month be uniformly dismal. If we're not there, we're pretty close.
In addition, I use TA to time my exact buy-in price, once the stock has reached the general "buy-in" range based on valuation and sentiment. As you can see, I find lots of reasons not to buy a stock. I like to see the stock make a bottom on high volume, after a long slide. Then, I wait for it to bounce at that level several times over a period of at least a couple of months. TXN doesn't meet this criteria yet. After the peak bubble valuation of 100, the stock slid steadily. Then it established a horizontal band at 36-50, between 10/00 and 2/01. Very recently, support at the bottom of that range was broken, and the stock is currently in free-fall. On a log chart of the last 10 years, a line drawn through the troughs is today at about 25. On any shorter-term chart, all support lines have been taken out.
So, I'll be buying TXN once a support line forms, or on a day the stock trades 30M shares. We need that volume to even consider the possiblility of a short-term bottom. I'd love to get some TXN LEAPs (2004 40s, available in late May) when the stock has overshot on the downside as severely as it overshot on the upside last year. |
