A Tech Giant That Insiders Want to Own

NEW YORK (TheStreet) -- You have to love a company that not only makes products that are in demand but whose leadership is buying shares in generous quantities.

As of the first of this year, the CEO of Texas Instruments ( TXN), Richard Templeton, owned an impressive 1,334,669 shares valued at Friday's closing share price of $39.11 at over $52 million.

Since Jan. 31, Templeton has held on to the shares of his company because it's in the right business at the right time and quite profitable to boot! It's a company that's been defining itself for more than 80 years.

"Texas Instruments serves the world's most innovative electronics companies, helping them develop new ideas that change the way we live," TXN says about itself. "By providing semiconductor technologies that promote greater power efficiency, enable more features, enhance performance and deliver more value, TI expands the possibilities every day for how we learn, connect, grow and discover."

If you want more details on what TXN accomplishes and provides I encourage you to visit its user-friendly Web site. You'll be as impressed as I was as you browse around.

Analysts don't love the company as much as shareholders do. Only 12 out of 44 rate it as a buy in spite of the latest positive earnings report and the share price hitting a 6-year high.

One analyst who believes in TXN is Marc Lichtenfeld, senior editor of The Oxford Income Letter.

Last Monday, after the market closed, TXN beat the consensus earnings per share estimate of 41 cents by 1 cent and raised guidance for the third quarterl.

The company expects to earn between 49 cents and 57 cents per share next quarter. The most recent consensus had been about 51 cents.

Lichtenfeld posed an important question in a report sent to subscribers on Thursday, "What has management been so confident about concerning the future?"

"For starters," Lichtenfeld opined, "margins are trending higher as the company continues its shift away from the wireless business."

He offered the following eye-opening table, which shows the comparison of margins in the second quarter of 2013 versus the same period last year.

Courtesy of The Oxford Income Weekly

As you can see, operating and net profit margins have moved nicely upward. "But there's more," Lichtenfeld observed. "Orders were up during the quarter and are expected to continue to improve, as well. In fact, the company had more orders than it could fill as its book-to-bill ratio (which measures orders received versus orders filled) was 1.03."

As his readers know, Lichtenfeld pointed out that "Management believes that every dollar of revenue can generate 20 cents to 25 cents in free cash flow, all of which will be returned to shareholders in the form of dividends and share buybacks."

Having followed Lichtenfeld's research for many years, I hold his stock-picking insights in high regard.

So when he reminded me that TXN also has an impressive track record when it comes to raising its dividend payout, I wasn't surprised. He noted the company increased its dividend for 10 years in a row, with the average increase close to 24%.

TXN's trailing 12-month levered free cash flow stood at $2.9 billion by the end of the first quarter 2013. Lichtenfeld believes the company only paid out 34% of its free cash flow in dividends.

Even with the first quarter's EPS numbers the payout ratio was about 47% so there appears to be plenty of room for a dividend increase.

The company had close to $4 billion in total cash at the end of March. As of the closing price of TXN shares on Friday, its $1.12 current annual dividend was only 2.86%.

If TXN wants to attract yield-hungry shareholders it will likely have to make better on its dividend to compete with generous rivals like Intel ( INTC), which has a current dividend yield-to-price of 3.87%.

Lichtenfeld remains optimistic about TXN even though analysts keep showing limited respect. Part of the reason he's optimistic is because he believes the company is likely to please its shareholders.

"Despite a strong quarter and great dividend track record, Texas Instruments remains out of favor among analysts. That's fine with me. We'll just continue to capture that increasing dividend until the rest of Wall Street realizes what it's missing," he concluded.

Since shares are approaching the 52-week high of $39.74, the upside potential seems muted for now. If TXN corrects to $37, the yield-to-price rises above 3%. That's when more investors may become buyers.

So far, CEO Templeton hasn't been selling. But neither he nor other insiders have been buying more at current levels, at least as far as I know.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ┬┐herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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