Wreathes on the front door, mistletoe hanging from the ceiling fan, eggnog in the fridge: These are a few of my favorite Christmas traditions. But over at Texas Instruments (NYSE:TXN), management seems intent on creating a new tradition of its own: The pre-earnings-release warning. Suffice it to say that I prefer the eggnog.

TI started off the week on a down note, waiting until markets had safely closed for the day before announcing Monday evening that it is once again taking its expectations down a notch. Previously expecting to earn about $0.33 per share on $2.9 billion in revenue, management warned investors that the more likely scenario is now ... $0.13 on $2.4 billion in revenue.

That's about a 17% haircut on sales expectations, and a 60% reduction in profits. Relative to last year's fourth quarter, we're now looking at around a 75% drop to earnings. And yet, the stock actually rose Tuesday in response to the news -- up 5%. So what gives?

Across the length and breadth of the semiconductor sector, management teams are issuing similar warnings. Like TI, Broadcom (NASDAQ:BRCM) warned on Monday, while National Semi (NYSE:NSM) reported a sales decline of its own. Yet Wall Street remains bullish on the sector. Megabanker Citigroup's Glen Yeung, for example, recommends that investors load up their Christmas stockings with high-quality names -- such as Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM), NVIDIA (NASDAQ:NVDA) and STMicro (NYSE:STM) -- arguing that "current valuations are near 1990 troughs."

But should you drink from the trough?
Focusing on TI (this is a column about TI, after all), what we have here is a stock trading for about eight times trailing P/E despite widespread agreement that earnings will grow north of 14% per year over the next half-decade. Seems cheap to me.

But the situation is actually even better. Under GAAP, TI "earned" $2.6 billion over the past 12 months. Not bad, but the firm's cash profits were even better. Over the past year, TI generated nearly $2.8 billion in free cash flow. Net out the firm's $2 billion cash stash, and this business is in fact selling for a mere 6.5 times trailing cash profits.

Foolish takeaway
Will TI get coal in its stocking for Christmas? Management tells us so, and I've no reason to doubt 'em. But our world still runs on semiconductor chips, and in the future, I'll hazard a guess, we'll need more of them rather than fewer. Once TI resumes its growth trend, we'll all look back on today's 6.5 times valuation, and regret not buying at these dirt cheap prices.

Unless, of course, you buy today. That's what we call a hint.

For more TI Foolishness, read:

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.