Texas Instruments and Micron Technology: Only Getting Bigger

There's dividend potential here, too.

Jul 14, 2014 at 6:15PM

Source: Findus238 via Flickr.

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some technology companies to your portfolio but don't have the time or expertise to hand-pick a few, the Technology Select Sector SPDR ETF (NYSEMKT:XLK) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this exchange-traded fund to invest in lots of technology companies simultaneously.

Why this ETF and why technology companies?
Our growing world population will demand more and better high-tech products and services over time, boosting the business of successful technology-oriented companies. The folks at IDC, for example, have projected that the big-data market will grow 27% annually through 2017. More broadly, analysts at Gartner see global IT spending growing by 2.1% this year and close to 4% next year, and topping $4 trillion by 2018.

This ETF can have you instantly invested in tech-heavy companies. It sports a tiny annual fee of 0.16% and has outperformed the world market over the past three, five, and 10 years. It yields about 1.7%. It's bigger and cheaper than most peers, and with a solid track record, too.

A closer look at some components
On your own you might not have selected Texas Instruments (NASDAQ:TXN) or Micron Technology, (NASDAQ:MU) as technology companies for your portfolio, but this ETF included them among its 71 holdings.

Texas Instruments
Texas Instruments, the $53 billion semiconductor giant, has served new and old shareholders well, with its stock price rising 35% over the past year and averaging gains of nearly 12% over the past 30. All is not perfect with the company, though. It has been restructuring and has gotten out of the mobile-chip business after many device makers started developing their own chips in-house.

In the past few years, revenue has been shrinking, but profit margins have been growing -- suggesting that the company is engaged in more profitable operations. Bulls are optimistic about the company's growing analog chip and embedded processors businesses, as well as its prospects in the Internet of things, which features connected cars and connected homes.

With a forward P/E ratio near 18, Texas Instruments stock doesn't appear to be a bargain right now. It bears keeping an eye on, though, as it yields 2.5% and its dividend has been growing by an annual average of 22% over the past five years, with more room to grow. It's also dedicated to rewarding shareholders, spending most of its free cash flow on dividends and stock buybacks. Indeed, its share count has gone from roughly 1.7 billion in 2004 to 1.1 billion recently.

Micron Technology
Micron Technology has also been enjoying rising profit margins, along with rising top and bottom lines and surging free cash flow. What's going on? Well, it has been benefiting from growing demand for memory, stabilizing prices, and its presence in iPhones, which are likely to experience a surge in sales with the upcoming iPhone 6. It's also building its solid-state drive (SSD) business, which uses NAND flash memory.

There are some reasons to worry. Micron's share count has nearly doubled since 2004, which hurts earnings per share. The company is addressing that by buying back convertible debt, but interested investors should keep an eye on this issue. Bears also worry about the commoditization of memory, the risk of falling prices, and tough competition. (Samsung might be ramping up its DRAM production, for example.)

Micron Technology's stock has soared more than 150% over the past year, but its P/E ratio near 11 suggests that it's still attractively priced. It pays no dividend, but management is being urged to institute one.

The big picture
It makes sense to consider adding some technology companies to your portfolio. You can do so easily via an ETF. Alternatively, you might simply investigate its holdings and then cherry-pick from among them after doing some research on your own.

Another promising stock with a big Apple connection
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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