Stock of the Week

Texas Instruments (Nasdaq: TXN) is a semiconductor company. More precisely, the company designs, manufactures, and sells chips to electronics manufacturers around the world. The company operates in two different segments: Analog and Embedded Processing. The company was founded in 1930 and is based in Dallas, Texas.

TXN has seen tremendous growth in its earnings over the last three years with an average annual rate of 23%.

The EPS grew by 25% during the most recent quarter.

Sales grew by 11% in the most recent quarter.

Analysts expect the company to continue growing with projected annual growth of 12.2% over the next five years.

In addition to the growth, the company has very attractive management efficiency measures.

The return on equity is at 42.3%, the profit margin is at 40.6% and the operating margin is 40.7%. Even with all the positives, only 16 out of 35 analysts rate the stock as a “buy” or better.

Texas Instruments has been trending higher for over two years now. If you look at the weekly stochastic readings, this is the first time since the summer of 2015 that they have been in oversold territory. The dip in mid-2017 didn’t quite reach oversold levels on the stochastics, but the stock rallied over 60% from the June low to the January high. The stock also rallied almost 60% from the January 2016 low to the July 2016 high. That was another instance where the stochastics didn’t quite reach oversold levels. I am looking for another gain of over 50% this time around.

Suggested strategy: Buy TXN with a maximum entry price of $105. I would set a target of at least $157.50 over the next nine to 12 months (for a potential return of 50%-plus from current prices). I would suggest a stop loss at the $92 level.

— Rick Pendergraft

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