Texas Instruments updates after the close tonight, while National Semi reports after the close as well. Altera reported after the bell Tuesday, lowered guidance, and yet the stock finished higher yesterday. Semi’s have always been a tough group to trade, but coming into q4, for those looking for some portfolio beta, semi’s are a good place to start, since when they run you can get some decent outperformance in a short period of time.
Expect TXN to lower guidance tonight, as a number of analysts have taken down numbers in front of tonight’s update, but in my opinion, TXN’s valuation discounts a lot of the semi slowdown since TXN is trading at 8(x) 4-quarter trailing cash-flow and 10(x) 4-quarter trailing free-cash-flow. with the q2 ’11 earnings release TXN guided to $3.4 - $3.7 in revenues (mid point of $3.55 bl), and eps of $0.55 - $0.60, or a mid point of $0.55. Trading at roughly 12(x) 2011 earnings which are expected to decline 7% in calendar ’11, with a 1.70% dividend yield, if you can be patient into year end, i think TXN works back towards the mid $30′s with a q4 rally.
If we didn’t own a lot of semi names already, we’d buy a 1/3rd position here today or tomorrow, a 1/3rd position in early October and a 1/3rd position post q4 earnings, for a run into Januray ’12 earnings reports. I do think we get a decent q4 rally in the stock market and semi’s will get you a little extra play into year end. However be careful out there.
