I was walking by my neighborhood grocery recently when I bumped into an old friend who had retired from a well-known Dallas tech company. As we caught up on old times, he told me that he’d missed his job so much that he went back to work as a consultant for the company. He’d missed its attention to detail, unrivaled focus on investors and customer service, and its tradition of long-term planning. I drive by that company’s gigantic plant every day, but after that conversation and what I’ve learned since, I see it differently. I hope I convince you to take another look as well, and maybe add its stock to your portfolio.

Texas-Size Opportunity

Overlooking Texas Instruments (NSDQ: TXN) is easy, given that many still associate it with handheld calculators. Just like its reliable calculators, Texas Instruments is not flashy, but passing on this leader in the analog and embedded processor sector is a mistake.

Computer-related semiconductors account for less than 10% of the entire chip market. The rest of the semiconductor market belongs to companies, such as Texas Instruments, that make all the other chips, including analog and embedded microprocessors, the electronics industry’s workhorses.

Most electronic devices such as cellphones, digital clocks and microwaves can’t function without the types of analog chips Texas Instruments makes. Even more crucial are embedded semiconductors, the brain chips for all non-PC-related systems. That’s why Texas Instruments has 100,000 customers and makes over 80,000 analog and embedded chips, plus the software needed to run them. So every maker of any electronic device in the world is a potential Texas Instruments client.

Long-Term Thinking

That’s tremendous potential, and Texas Instruments consistently scores by selling sophisticated, highly profitable products with a long-term life cycle. The company’s success is the result of building state-of-the-art factories that will stay cutting-edge for years. The longer the company runs a factory, the lower the manufacturing costs are and the higher the profits. Plus, Texas Instruments spends $1 billion per year on research and development to keep its edge.

Texas Instruments does most of its manufacturing in-house, as opposed to heavily outsourcing it, as many of its competitors do. This lets the company more nimbly produce new designs for customers. Texas Instruments also is smart about buying companies with the technologies it needs.

An example of this smart, well executed, multi-pronged strategy is Texas Instruments’ 300 mm wafer analog chip. This new design was introduced in 2010, is still going strong and has few rivals. It’s larger than the 200 mm chip commonly used by the company’s competitors, and because of that the chip can house more circuits and costs 40% less to make, boosting Texas Instruments’ profits. The company expects this product to bring $8 billion in revenue before running its course. Besides increasing Texas Instruments’ market share in analog, the plant for the larger wafer is almost paid for, which means that profits will grow as costs drop.

Smart Cars Drive Cash Flow

Texas Instruments’ most dramatic profit growth will come from more sales in the automotive and industrial-automation segments, especially for infotainment. The company’s chips are in cars from most manufacturers, including BMW and Ford. But an example of Texas Instruments’ efforts to expand this segment is its recent collaboration with Volkswagen on the MIB-II system. The latest version of this system lets drivers, through the touch sensor-based dashboard, manage the entire car’s electronic infotainment (phone, radio, CD player and theater system). It also allows connections to other Internet-based platforms, such as Apple CarPlay, Android Auto and MirrorLink. 

Another opportunity in automotive is in safety systems. This includes the heads-up display in which Texas Instruments’ embedded chips manage cameras and sensors to alert the driver to potential hazards and to project images on the windshield.

This literally can be a lifesaver. For example, the system can sense an impending collision with a pedestrian and project a warning on the windshield. This technology, once reserved only for more expensive cars, is moving to more affordable cars, expanding Texas Instruments’ market.

Solid Financials

The company is financially solid. For example, Apple decreased orders to many suppliers recently, including to Texas Instruments. Most suppliers suffered, but because of Texas Instruments’ diversified products and customers, the company beat expectations and delivered its first increase in revenue in four quarters, along with a rise in new orders. Instead of phone chips, the big growth recently has come from embedded processors (9% growth and 23% of company revenue), with auto and industrial categories leading the charge. The other two major product lines, analog and “other” categories, remained flat but profitable.

Cash flow from operations was $1.07 billion in its most recent quarter, and free cash flow for the past 12 months was $3.87 billion, or 30% of revenue. This growth pace, which includes free cash flow from two robust quarters in 2015 and two moderate quarters in 2016, puts potential free cash flow well ahead of 2015’s $3.72 billion total for the entire year, if the trend continues.

It’s possible that free cash flow could reach $4 billion for the year. If so, this could boost the share price and possibly lead to a dividend increase (the stock currently yields 2.3%). Recent guidance remains at the top of the expected range, with revenue expected between $3.34 billion and $3.62 billion, and earnings in the range of 81 cents to 91 cents per share. Texas Instruments is also well funded for rough times, with $2.5 billion in cash and short-term investments.

How to Buy

Stock Recommendation: The company’s pristine execution of its business model, portfolio of diversified products, broad customer base and long-term planning provide a solid foundation for long-term investors. Its 2.3% dividend yield, however, is still higher than the yield of a 10-year Treasury note, with the potential for an increase given the company’s 12-year history of raising dividends.

Buy Texas Instruments from $60 to $70 a share.