Think Texas Instruments Is Boring? Think Again

In the following segment from Industry Focus: Consumer Goods, host Jason Moser introduces new Motley Fool investment analyst Thomas King to listeners. Get to know King in the clip below, in which he talks about his personal and investing background, and also discusses a stock he thinks is a compelling buy: Texas Instruments (TXN 1.27%).

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on May 28, 2019.

Jason Moser: As you may remember, we've recently brought four new analysts onto our investing team here at The Motley Fool, and we wanted to take the opportunity here on Industry Focus and Between Two Fools to introduce you to them. This week, I had the opportunity to sit down and speak with Thomas King. I hope you enjoy our conversation.

Okay, Tom, first things first, tell us who you are and tell us what got you here to The Motley Fool.

Thomas King: Hi, Jason, thanks for having me on the show. My name is Thomas King. You can probably hear from my accent that I'm not from around here.

Moser: No!

King: [laughs] I'm originally a South African. I moved to the United States in July of last year. I wasn't always a financial analyst. I was actually an environmental scientist before this. But I got very interested in finance, and particularly in analyzing companies and economics. So I got the education that I needed and came over to the States, and looked around at who would be wonderful to work for, and fortunately, I found The Motley Fool and The Motley Fool found me, and that's how I got to be here.

Moser: I remember talking with you right after you got here. So listeners know, I was part of the interview process, watching you go through that process and meeting you and learning about you. Shortly after we hired you, you said something to me that really struck me -- I felt the same way when I got hired, too. You said, "I think I found my tribe." And I thought, you know what, I know what you mean.

King: Yeah, that's exactly how I felt.

Moser: That was really good to hear. Very interesting educational background you have. That gives you a lot of good perspective when it comes to investing. I think one of the more enjoyable things about our job, especially when you're new like you are, is figuring out what kind of investor you are. I came here, and I wasn't exactly sure, either. What kind of investor are you? Do you consider yourself a value guy or a growth guy? Are you kind of in between, or something else entirely?

King: I would describe myself as a value guy, in the value field. That's where I was kind of brought up. My first introductions to investing were in value investing. That is my pedigree. I think it's the style of investing, also, which makes the most sense. But I have learned since I've been here, you've got to be open-minded. It comes also down to your personality as well. I'm a bit of a Doubting Thomas. I like to see something before I'll believe it, to some extent. There's got to be evidence, there's got to be a reasonable basis, you've got to weigh up your probabilities. I don't try to go into hopes and dreams too much, although it is good to be an optimist in this business, but you've also got to be a realist.

Moser: Yeah, yeah. I think that's a good mix there. The more you meet with David Gardner, for example, who is our resident growth expert -- I don't think he really likes that term, growth investor. But, Rule Breaker. He goes in there and he looks for those companies with that special sauce, something different, and you can't quite put numbers around it, maybe, in the beginning. But you know there's something there. There is a leap of faith you're taking with virtually every investment we make. But I think that's one of the fun things here is, as you go on, you will find, you develop into a more well-rounded investor with a lot of different perspectives. It's very helpful, and I know we'll enjoy watching you develop here.

Since you have gotten here -- it hasn't been all that long, right? You've only been working here for a few months. But this is the Fool. Every day is an adventure. What is something you've learned in regard to investing since you got here that surprised you, something maybe you weren't expecting?

King: I think what I'd have to say that would be, would be the just the wide variety of backgrounds and styles here. We're not expected to fit into any kind of box.

Moser: Well, we're motley.

King: [laughs] Exactly. We have a lot of freedom to explore our interests, follow our noses, and see where that leads us. And I think that's a great thing. It gives people the chance to be innovative and to expand their intellect. I think it's great. It's a very interesting place to work and to be.

Moser: I've always called it -- I don't know if you're familiar with Montessori school?

King: I am.

Moser: I went to Montessori school growing up, and I've always likened this place to a Montessori school for adults. You can come in here and you just do. You have that opportunity to come in and just do something. And it can be different every day. But I think what it leads to is, you see this investing team we have here with a lot of different perspectives, a lot of value to offer in a lot of different ways. I'm sure that you'll see that as time goes on.

Tell me, what is the best piece of investing advice you've ever gotten? It doesn't have to be from here. It can be something when you were growing up, maybe something your father handed down to you. What is the best piece of investing advice you've ever gotten?

King: I would have to say, this has come through from Peter Lynch and from Warren Buffett, it is to see a share that you earn as a part ownership in a business. I realize that people might be like, "Duh, yeah, of course it is." [laughs] But it is quite easy to forget that fact when you see stock prices, you see blips on the screen. It's easy to forget that you own part of this business. You employ the CEO and the CFO to do a job for you because you can't be there yourself. If they fail at that job, it becomes your problem. They are your employees. I think that keeping that in mind is really important, to keep your perspective correct as you go about the investing process. So, I would say that is the single most important piece of advice I've ever received.

Moser: I like that. My wife and I work with our girls, helping them learn about money and investing and whatnot, so they're investors, and that is how we started. They essentially started with that mentality -- they're an owner, they're a part owner of that business. And so now they've realized that anytime we go to Disney World or watch something on TV from Disney, they're like, yeah, you own a little bit of that company. If you get something from Starbucks, you're kind of paying yourself. And they appreciate that perspective. Because you're right, in the day to day, stock prices go up and go down. You can't really make sense of the madness sometimes. But focusing on that underlying business really is what it all boils down to.

Going away from investing, you've had, obviously, an interesting life that has led you to work with us here. Tell us something unique or special about you, something that's happened in your life that people out there should know.

King: My most interesting story is that I spent nearly a year living in a tent.

Moser: [laughs] Not as a Boy Scout or anything, I assume?

King: No.

Moser: Why?!

King: What I was doing was, after I left school, I worked for a company, we did minerals exploration. Our specialty was getting to remote locations, basically to be the first boots on the ground, getting samples as part of the mineral sampling programs. Basically, that means, where we went, there were generally no roads, and certainly no civilization, so we lived in tents. I did that for a year, and I really enjoyed it, and have a lot of memories. It was an interesting time.

Moser: I can imagine. I grew up a Boy Scout, and we did our fair share of camping, but I don't think I ever stayed in a tent for quite that long. I can imagine the challenges that you overcame. Wow, that is very interesting. Cool. Good deal.

All right. Well, we normally like to wrap these interviews up, and I get book recommendations from the people we're interviewing, but because you're in here as an analyst now, we're getting people to listen to your advice and your stock ideas, I want you to give our listeners out there a stock on your radar, a stock that you like today and why.

King: Okay. I'm very interested in a business called Texas Instruments, you may probably be most familiar with them as the maker of the calculators. There are a lot of attractive features to this business. I think the management team is very experienced. They set transparent targets for themselves and they measure themselves against these regularly. That is always good to see.

In terms of the economics of the business, it's a manufacturer of semiconductors, which are essentially the brains of our electronic devices. They do all the processing, process all the information. They've got a very strong wind in their sales as devices become more and more computerized. I mean, we're putting semiconductors into washing machines these days.

Moser: [laughs] It's scary.

King: So, they've got a good wind in their sales. They're also a very profitable company. It has amazing returns on equity. Over the last five years, its return on equity has varied between 26.6% and 57.7%.

Over the same period, their amount of debt as a proportion of total capital has varied between 25.6% and 36%. What that says is that TI is achieving these returns on equity without significant leverage.

Moser: That's always encouraging.

King: Yeah. And in the last financial year, it had a free cash flow margin of 38%, with free cash flow calculated as cash from operations minus capital expenditures. So, for every dollar this business earns, the shareholders could happily take out $0.38 without impairing the competitive position of the business. This is also not just a once-off blip in its performance. This free cash flow margin has grown from 28% five years ago to its present level. Another nice thing about it is, you can buy this business currently for about 15 times free cash flow.

Moser: A relative bargain in a market where everything looks pretty darn expensive today.

King: Correct.

Moser: All right. Well, great stuff. Good deal, Tom. I appreciate that. I'm sure our listeners enjoyed getting to know you. I'm sure they'll be hearing a lot from you in the near future. Thanks for coming by!

King: Thank you very much!