You Call this Music?
Change in the marketplace is simply the music to which its participants dance. Uncertainty brings up the volume and adds distortion.
In March of 2020, the market was in freefall due to the uncertainty surrounding COVID-19. On March 12th, we sent out a note suggesting patience and a reminder, that as value investors, we view stocks going on sale as an opportunity.
Flash forward from the date of that note, and the market, based on the performance of the S&P 500 Index, has doubled through April 4th.
But, here we are, with a new bout of uncertainty. Very loud, with plenty of distortion.
While the circumstances driving it have changed from a global pandemic to a trade war, our approach to the market and guidance to you, as our clients, has not.
While it is impossible to know which way the market is headed in the short-term, just as it was in 2020, we are working hard to apply our long-standing 10 Principles of Value Investing™ to a newly available, attractively priced basket of stocks the uncertainty has delivered.
A perfect example is Texas Instruments Inc. (TXN):
As the automotive industry becomes more advanced, devices throughout vehicles speak to each other and report information back to the driver, all over analog networks. While there is plenty of talk about the future of high-tech, digital semi-conductors and the companies who make them, the much lower tech analog products made by TXN have massive production costs to implement and each unit can sell for as little as a few pennies. Some cars have as many as 500 unique components requiring an analog chip. While none of them carry the hefty price tag or margin of the big players in the digital chip world, the volume of unique pieces needed to be manufactured, combined with thinner margins, is likely to keep new competitors at bay. TXN’s clients also have very little incentive to switch to a competitor as unit prices are so low the risk reward would likely not make sense.
Believing there could be disruption in global supply chains, TXN committed to onshoring much of their production years ago. Giving them a head-start on the competition in the face of tariffs.
Add in a solid balance sheet, a strong credit profile and a 3% dividend yield, as a potential margin of safety, and you have a quintessential Heartland stock.
We continue to consider a wide range of potential outcomes with every stock and look for the best risk rewards we can find.
Take solace in the work you hired us to do, and maybe, put in your ear plugs until the volume is turned down.
Thank you for your trust and confidence.
Your team at Heartland.
Past performance does not guarantee future results.
As of 4/7/2025 Heartland Advisors, Inc. owned less than 1% of shares outstanding of Texas Instruments Inc. (TXN).
For additional discloures, see here: Additional Disclosures